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LAWLESS WEALTH 



Lawless Wealth 

THE ORIGIN OF SOME GREAT 
AMERICAN FORTUNES 



BY 

CHARLES EDWARD RUSSELL 

Author of "The Greatest Trust in the World," etc. 




NEW YORK 
B. W. DODGE & COMPANY 

1908 



\\^'$^ 



5UBKARY of 0»':)W^-5^;S3si 
iwo Copies rteti 

MAY n 1908 




> AACi WU: I 






Copyright, igo8, by 
B. W. DODGE & CO. 



ENTERED AT STATIONERS HALL, LONDON 



PUBLISHERS' NOTE 

Of the contents of this book the greater part ap- 
peared in a series of articles published in Everybody's 
Magazine in 1907-8, entitled "Where Did you Get It, 
Gentlemen?" Acknowledgment is due to the Ridg- 
way Company, publishers of Everybody's Magazine, 
for permission to reprint this matter. Several chapters 
have been added by Mr. Russell to complete his re- 
markable story. 

Copyright, 1 907-1 908, by 
THE RIDGWAY COMPANY. 



CONTENTS 



CHAPTER PAGE 

I. Golden Tides about the Golden City i 

II. The Beginnings of a Great Fortune 17 

III. The First Developments of the Formula 

FOR Sudden Wealth 36 

IV. The Formula for Wealth as It was Worked 

in Chicago and New York 56 

V. The Story of the Great Milwaukee Deal 78 

VI. The Story of the Hocking Valley Loot. . . 83 

VII. The Story of the Two Virginians 94 

VIII. The Office Boy in High Finance iii 

IX. Additional Light on the Judicious Mixture 
OF Politics and Business that is Essen- 
tial TO THE Best Playing of the Game 126 

X. Tobacco and High Finance 148 

XI. The Syndicate Comes In 160 

XII. The True Dimensions of a Great Money- 
making Machine 177 

XIII. The Great Game of Insurance 187 

XIV. The Wreck of a Great Property 203 

XV. The Fathomless Mysteries of High Finance 212 

XVI. The True Functions of a "Holding Com- 
pany " 226 

V 



vi CONTENTS 

CHAPTER PAGE 

XVII. The Brunt of the Burden 239 

XVIII, The Experiences of a Witness 246 

XIX. Side-lights on Civilization in a Great 

City 254 

XX. Copartners in Guilt 274 



The land of England has ruled it for six hun- 
dred years. The corporations of America mean 
to rule It In the same way, and, unless some power 
more radical than that of ordinary politics Is found, 
will rule It Inevitably. I confess that the only fear 
I have In regard to republican institutions is 
whether, In our day, any adequate remedy will be 
found for this widening flood of the power of incor- 
porated wealth. 

— Wendell Phillips. 



LAWLESS WEALTH 

CHAPTER I 

GOLDEN TIDES ABOUT THE GOLDEN CITY 

Here^ at the gateway of a world, sits the im- 
perial city of New York, and about her and over 
her is piled such wealth as men have never before 
dreamed of. 

How wonderful it all is ! Daily in this richest 
of cities you can see the golden flood rising and 
never ebbing. So much wealth, so much luxury, 
such a bewildering display, such a concentra- 
tion of the power for which money is only 
a symbol has not been known in the records 
of the race. No other men have been so rich as 
some New York men ; so many rich men have not 
gathered in another place. With pride and awe 
we count here one man whose wealth is reputed to 
be one thousand million dollars, five men whose 



2 LAWLESS WEALTH 

wealth IS estimated at more than three hundred 
millions each, ten men whose wealth is reported to 
be one hundred millions each, four thousand men 
whose wealth is computed at one million or more 
each. In face of these stupendous totals the mind 
staggers and hardly apprehends the significance of 
the figures; but everywhere the eye can see the 
physical and enduring monuments of existing con- 
ditions. Those strange gigantic structures, massed 
one upon another, mile after mile, in the business 
region — in all the world where can you find an 
equal expression of power and energy? And the 
palaces grouped about the park — how plainly they 
speak of the ceaseless tide of gold that sweeps into 
this unique habitat of men ! 

No, not elsewhere can you find such wealth ; in 
few places such tremendous and thought-compelling 
contrasts. How strange to go from upper Fifth 
Avenue and stand before that block in Orchard 
Street that is the most densely populated spot on 
this earth! The utmost extremes of attainable 
magnificence and endurable misery seem bent 
around to touch within this marvelous city. 

If the figures and analyses of the sociologists hold 
true, here are 10,000 persons that are rich, 500,000 
that are well-to-do, 1,500,000 that are poor, 



LAWLESS WEALTH 3 

2,000,000 that are very poo-r. Take, then, these 
3,500,000 of the poor and very poor. How comes 
it that the golden flood misses them? Here it runs 
all about them, so deep and wide a current that the 
Imperial city wantons in it and wastes it and plays 
with It. And here are 2,000,000 that seem to 
have little or none of it. Why so little? Or why 
none? The fact is apparent enough. Do but 
walk through the district east of the Bowery and 
Third Avenue and south of Twenty-third Street; 
you shall have evidence convincing. Go into some 
of the courts and rear tenements in the region, let 
us say, between the two bridge terminals. The 
filthy and vilely overcrowded dwellings, the pois- 
oned air, the moldy dampness of ancient and dark 
passageways, the reeking halls, the malarial areas, 
the ragged crowds, the toiling men, the tired 
women, the ill-developed, half-nourished children, 
the jostling masses on the sidewalks, the forlorn 
and unkempt appearance of the streets, the painful 
evidences of a daily and grim struggle, hand-to- 
hand, eye-to-eye, for bare life and breath, the 
women thrust into unwomanly employments, the 
children at work when they should be at school — 
you know all these things well if you have ever 
strayed into that noisome territory. Plainly, no 



4 LAWLESS WEALTH. 

golden flood touches these sodden and unclean 
shores. 

And how is it with the 1,500,000 of the next 
above stratum, upon whom Is laid a need only less 
harsh? In thousands of modest flats in the better 
regions dwell these families that win larger in- 
comes, the families of the employed men, the clerks, 
the salesmen, the regulars and non-commissioned 
officers in the army of industry. The average 
wealth among these, we are told, is $1,639. How 
far that bears us from the plashings of the golden 
stream ! The furniture in the little flat and the 
savings of the good man and the economies of the 
wife, and all they have together, to wear and to 
use and to bequeath, are worth $1,639. ^^ ^^^ 
an annual salary, perhaps $2,000, the good man. 
From that in a city where the cost of living Is 
greater than in any other city of men, he must feed 
and clothe the family, pay his rent (which shows 
steadily a tendency to increase) , maintain his life 
insurance, if he be prudent, and lay by for the day 
when he shall be no longer able to earn. And his 
rent alone is one-fourth or more of his income. 
How does life go in that little flat? From where 
he stands and toils, if he looks up to no more than 
a ledge of security, the distance seems impossible; 



LAWLESS WEALTH 5 

up to a competence, overwhelming; to wealth, a 
mere dream. Yet men have traversed it ; he knows 
that. By what incomprehensible genius, by what 
great gifts of mind wholly distinguishing them 
from other men, by what totally differing structure 
of brain cells have they achieved it? 

He knows that in his country opportunity must 
be for all men equal. Often he heard it declared 
to be thus equal when he was a boy and went to 
Fourth of July meetings in the country; often he 
has read the same statement since. So that the 
trouble with him Is In himself. Clearly he lacks 
the mental capacity to be rich. 

And he finds that this is the opinion of the world 
also. He finds that In the opinion of mankind the 
Inequality between his state and the state of the 
10,000, and the still more terrible contrast between 
the 10,000 and the 2,000,000 are perfectly ex- 
plained, perfectly justified, perfectly established, as 
eternally right, reasonable and moral, by this dif- 
ference in brain cells. I 

Moreover, he learns that there Is another reason. 
The men that are deepest in the stream are, by com- 
mon report, further endowed than with merely this 
rare wondrous gift of ability. They have done 
something. These are the men upon whom rest 



6 LAWLESS WEALTH 

the foundations of prosperity. They say so. 
Others say so. The world seems to accept and 
believe the doctrine as a thing not to be ques- 
tioned. The newspapers chronicle respectfully the 
doing and the sayings of these men; reflections or 
adverse comments upon them are resented as con- 
stituting assaults upon the bases of the general wel- 
fare. Like an inverted pyramid, the 500,000, the 
1,500,000 and the 2,000,000 repose upon the 
things done by the 10,000. In a way almost sacred 
the 10,000 seem to hold the palladium of national 
progress. Thus, by the gift of this ability that 
so sets them apart and marks them from other men, 
they, according to the entertained theory, have de- 
veloped the railroads, built the factories, estab- 
lished the commerce, created the industries of the 
land. Upon these railroads, factories, commerce, 
industries, depend the employment and conse- 
quently the lives of the 1,500,000 that have little 
ability and of the 2,000,000 that have none. 
, Therefore, on all grounds of the strictest moral 
principle, the 10,000 that are blessed with ability 
are entitled to all else they have possessed them- 
selves of. 

I am a plain man from the West, and I have in 
the golden imperial city a friend among the 1,500,- 



LAWLESS WEALTH 1 

000 of the little able, and he takes me forth to 
view the wonders of the vast human hive about us. 
We see very many things that instruct my ungifted 
mind. We traverse these miles of gigantic build- 
ings, and I glimpse a little of the incalculable, in- 
domitable, abnormal force that they represent ; and 
then he takes me to view the region where dwell the 
4,000 men that control this force. 

It is all very wonderful. The great white 
gleaming palaces remind me of the pictures I have 
seen of stately structures in European capitals. 
Here is a house with a broad driveway sweeping 
clear to the front door and with no other exit, as 
if the inmates never walk when they go abroad. 
Under a kind of beautiful canopy, all glass and 
bronze-like metal, a carriage is waiting, a great 
shining chariot, with much silver and crystal, very 
handsome. The driver has a sort of uniform with 
a dark green coat and very big silver buttons and 
a high silk hat with something on it and very white 
trousers that look as if they were made of some 
kind of white leather, and high boots with yellow 
tops; and by the carriage door is another man 
dressed exactly like the driver. How stately and 
impressive is the show ! 

We pass another house, very large and com- 



8 LAWLESS WEALTH 

manding, with a little patch of ground about It and 
a very high steel fence on all sides. We pass other 
magnificent houses, stone, of an even brown color, 
very pleasing; enormous houses of a solid and 
serious architecture. Then we come to large and 
beautiful buildings that are pointed out to me as 
the homes of different clubs of successful men ; and 
again to many others, almost or quite as large, that 
are merely residences. I see innumerable automo- 
biles; everybody in this smiling and prosperous re- 
gion seems to have an automobile. I am told that 
many of the residents have a dozen automobiles 
apiece, different styles for different occasions; one 
automobile to shop in, and one to use in the park, 
iand one to use in the country, and one for a few 
persons, and one for six or eight; large automobiles 
and small automobiles for different purposes and 
humors, with expert servants to operate them 
quickly and safely and transform the task of travel 
into a sensuous delight. With joy I hear of these 
things : to my mind they illustrate progress. 

There are no cheap nor mean nor repulsive-look- 
ing houses here, nor ill-fed people, no stuffy courts, 
no malodorous hallways; but all things betoken 
comfort and prosperity. The sidewalks are never 
crowded, there is plenty of air and sunlight, the 



LAWLESS WEALTH 9 

people are always, well dressed and look gentle and 
happy. The sun shines and the rows of palaces 
gleam in the keen light. Across the street is the 
park and that is beautiful too: the white houses 
make an agreeable contrast against all that mass of 
vivid green. I look at the whole extraordinary 
spectacle, and it seems to me typical of the wealth 
and the peculiar greatness of my country. 

For, say I to myself, here is the very summit of 
opportunity, here is the crowning triumph of the 
principle of a free field to all, this shows what men 
can do -when, unhampered by the foolish govern- 
mental interference of the older world, they are 
set down before the opened gates of fortune. The 
men that built all these beautiful houses, say I to 
myself, were the gifted generals on the commercial 
battlefield, and their dwellings are emblematical of 
their victories, as of old time men used to win suits 
of armor in the tourney. Doubtless, I say. In the 
first house lives a great merchant. By his ability, 
•energy, and foresight he built a great business, he 
brought together producer and consumer, he estab- 
lished a great mart, he supplied a want of society. 
By the rules of the war game and of our civilization 
this is his reward. 

And the next house belongs to a man that devel- 



lo LAWLESS WEALTH 



n 



oped the railroad service of the United States ; he 
built new h'nes and improved old. By his ability, 
energy, and foresight he made transportation cheap 
and easy. He served society well, and by the rules 
of the war game this is his reward. 

And the next house is the house of a man that 
developed the coal industry. He improved and 
cheapened coal production, he made fuel cheaper 
in the world, he lessened the burden of the ungifted. 
By his ability, energy and foresight he built a great 
and useful business ; he served society well, and by 
the rules of the war game this is his reward. 

And the ntyit house is the house of a man that 
developed a great manufacturing enterprise. By 
his ability, energy and foresight he constructed a 
system whereby something should be supplied that 
all men needed — shoes, perhaps, or hats. He 
made these things cheap and plentiful for all man- 
kind, he was of use to sotiety, and this is his reward. 

With pleasure I reflect upon all these things: 
^ they prove again- the greatness of my country and 
again the triumph of that free opportunity of which 
we have ever been proud. True, I cannot see ex- 
actly wherein my ungifted friend at my side has 
much share in this glorious opportunity. True, it 
appears certain that all his life he will struggle 



LAWLESS WEALTH ii 

dubiously for each day's bread and be pursued by 
the specters of rent and butchers' bills. True, I 
have a disagreeable reflection that fuel has not been 
made cheaper in the world, that production has not 
been furthered, that the essential state of the over- 
whelming majority of mankind has not been nota- 
bly improved. True, we have journeyed uptown 
by way of Attorney Street and Columbia Street 
and Avenue B, and while I rejoice at the scene now 
before me, there is a memory I could well spare 
of scenes lately passed, and a traitorous suggestion 
that the rewards are disproportionate. But unde- 
niably they are admirable and rich, as here they ap- 
pear massed before me, and that is the true Ameri- 
can way, to give with liberal hand. Indeed, how 
typically American it all is ! These men were the 
free architects of their own fortunes. Doubtless 
most of them began poor; now they are rich. This 
that they have, they earned. How excellent was the 
wisdom of the forefathers that established here the 
broad and unrestricted fields that invite and en- 
courage gifted men! How superior to anything 
known abroad are these conditions of incentive and 
reward ! 

So I think, with a sense of profound gratitude 



12 LAWLESS WEALTH 

that I am of this country that secures these bless- 
ings. 

But 'am I right? 

Hardly. If I remain long enough In New York 
and gain instruction in things as they really are, 
there will inevitably befall me a sad and complete 
disillusion. I shall learn that my patriotic en- 
thusiasm before the gleaming palaces was based 
upon the airy fabric of a dream. I shall learn, 
perhaps to my dismay, that not one of the beautiful 
houses I have been admiring represents a fortune 
gained in any such way as I have fondly supposed, 
and not one of these fortunes reflects anything but 
discredit upon the national name. 

The proprietor of the first house was not a great 
merchant: he established no mart, he brought to- 
gether no producer and consumer, he assisted in no 
way to supply any demand. Wealth he has in 
huge superfluity, wealth that increases upon him 
until he knows not what to do with It; but not a 
dollar of it represents any service done nor any 
want supplied. 

And the man that lives In the second house did 
not help to develop the railroad system, he has built 
no lines nor extended nor Improved them, though 



LAF/LESS WEALTH 13 

he owns many railroads; he has in no wise facili- 
tated transportation, but only made it difficult. 

And the man that lives in the third house had 
nothing to do with developing the coal industry. 
Coal mines he owns, many of them, but he has 
never dreamed of extending them for the general 
good nor of making them useful to society. He 
has not made coal cheaper but dearer; he has not 
served society, he has injured it. 

And the man that lives in the fourth house has 
built no great manufacturing enterprise, he has 
had nothing to do with any system whereby any- 
thing is supplied that men need. He owns great 
manufactories, but their product he has not made 
cheaper but dearer. He has not helped men to 
supply their needs, but only hindered them. 

Then how were these vast fortunes acquired? 
By what means were these white palaces secured? 
What does this wealth represent? How were the 
ability, energy, and foresight manifested? In just 
what way have the gifted proved their different 
molding from the ungifted? 

One of the heroes of this field, a mighty general 
of these battles, one covered with the glory of in- 
numerable victories, one whose gifts are deemed 
exceptional, whose ability, energy, and foresight 



14 LAWLESS WEALTH 

all men admit, has lately furnished far better an- 
swers to these questions than any I can hit upon, 
and furnished them under oath. He sat one day 
on the witness stand, while a patient inquisitor drew 
from him, reluctant word by word, the full story 
of one of these great fortunes in the making, one 
of these white palaces in the building. It ap- 
peared, to give but one chapter of his narrative, 
that with three other men he had secured control of 
a certain railroad: that thereupon they had arbi- 
trarily increased the capitalization of that railroad 
from $39,000,000 to $122,000,000; that at the 
price of 6^^ which arbitrarily they had made, they 
had sold the added securities to themselves; that 
these securities thus acquired they had immediately 
resold to the public at 90 to 96; and that from 
these operations they had made a net profit of 
$23,000,000. 

It appeared further that in all these transactions 
these gifted men had violated the laws and the con- 
stitution of the State in which the railroad was sit- 
uated; that their profits were utterly illegal; that 
the additional capitalization was not needed for 
any purpose of developing, extending, or improving 
the railroad ; that it had no significance to the prop- 



LAWLESS WEALTH 15 

erty except as an enormous burden that for years to 
come the public must bear. 

But surely, say you (still, very likely, under the 
spell of the old dream of laissez faire, still be- 
witched by the Idea of the grandeur of fortune- 
building), surely, say you, this is very exceptional; 
men do not often make money in this way; the 
loud clamor of denunciation that followed this par- 
ticular revelation showed how very rare such 
achievements must be. 

Rare? says the initiated observer. Not at all 
rare; and nothing is stranger than that there should 
have been any denunciation on this occasion. It 
reminds one of what Macaulay said about the Brit- 
ish public In one of Its periodical spasms of virtue. 
Rare, are they? Dear reader, some of the great, 
the very great fortunes of New York City have 
been the accumulation of generations through the 
gradual Increase In the value of real estate; some 
have been Inherited. These may be omitted from 
the present consideration. Aside from these all 
the stupendous fortunes quickly acquired have been 
gained In some such way as this captain of Industry 
described on the witness stand ; In some such way, 
because there Is no other way In which they can be 
gained. Nor, If convention be a basis of morals, 



1 6 LAWLESS WEALTH 

does this way of gaining them involve reproach, for 
we have much more than condoned it: we 
have warmly lauded its results and agreed that 
the men that practise It are excellent men and 
model citizens; and doubtless It has been viewed 
j abroad as the one distinguishing characteristic of 
OUT financial operations. 

Therefore, without prejudice and merely as Illus- 
trations of these matters and as examples of the 
methods by which ability therein manifests Itself, I 
purpose here to state some of the memorable 
achievements In high finance of that group of 
gifted men that formerly centered around William 
C. Whitney, and of whom the colossus and master 
mind now appears In Thomas Fortune Ryan. 



CHAPTER II 

THE BEGINNINGS OF A GREAT FORTUNE 

Here is a man whose career has been the ro- 
mance of success, who has climbed to the heights 
of wealth and almost imperial power, a king of 
finance, a marvel of enterprise and commercial wis- 
dom. He began poor, he is very rich; he began 
obscure, he is the partner of a king and the con- 
fidant of rulers ; he was a servitor at a pittance, he 
IS the employer of millions ; he was an obscure and 
nameless molecule in the human tide, now he dic- 
tates legislation and controls policies, he commands 
enormous enterprises, he is known about the world, 
he is to the history of commerce as a famous strate- 
gist is to the history of wan 

Surely this is a wonderful story. How admir- 
ably it shows the possibilities of that **free and un- 
hampered opportunity'* of which we have just 
spoken! The poor boy starting upon his career 
with no help but his own will and his two hands, 

17 



1 8 LAWLESS WEALTH 

with no advantage but the unrestricted conditions 
provided for him ; and do but observe the fortune, 
estimated at hundreds of millions of dollars, the 
endless range of profitable investments, the huge 
industries that are now his ! With no extravagance 
we may think that scarcely another man in the com- 
mercial world stands in a position so commanding. 
His mind determines upon a certain line of action, 
and the next day the poor cigar dealer in Australia 
or the cabinet of Belgium feels the effects thereof. 
In Kentucky and on the Congo, in London and San 
Francisco, from the northern limits of civilized 
Canada to and beyond Mexico, men are employed 
by him and are subject to his will; he says to them. 
Do this, and they do it. On the affairs of the 
nation he exercises a potent and constant influence. 
His own attorney is Secretary of State ; he has his 
own men in the Senate and the House of Repre- 
sentatives ; he has his own way about Panama Canal 
contracts. He can sway the actions, affect the vot- 
ing, and lead the thinking of many thousands of 
men. He selects candidates for partisan nomina- 
tion ; men of his choosing sit in high places in local 
and other governments. Until very lately he was 
a director or trustee in thirty-two great corpora- 
tions. He owns life insurance companies, banks. 



LAWLESS WEALTH 19 

trust companies, railroads, mines, gas companies, 
electric light companies, traction companies; he Is 
influential in the Tobacco Trust, he has won the 
control of the Seaboard Air Line. On the chess- 
board of finance he makes strange, secret, and as- 
tounding moves, and wins. Nothing important 
can now be done in that game without consulting 
him. 

He lives most quietly in a great unpretentious 
house at No. 60 Fifth Avenue. In the mad rush 
to shower and splash the golden flood he has no 
interest. His life is business. He goes to his 
office early, he remains late; he works in his study 
at night. A tall, erect, powerfully built man, in 
the best of his strength; a very silent man, with no 
confidants nor close associates; a secretive man of 
whose plans and Intentions nothing Is surmised until 
they are recorded In events; a cool and self-mas- 
tered man that never says a word In heat nor does 
an act without consideration — ^Wall Street fears 
him and puzzles over him, but never understands 
him. He has a great square jaw and face as re- 
lentless as an axe, and yet his characteristic policy 
is to win by indirection. With hands and arms 
and skill to wield a broadsword his fancy Is for the 
finest rapier. No man has more caution ; no man 



20 LAWLESS WEALTH. 

will thrust more boldly when the time comes, and 
for skill in extricating himself from a threatened 
position he has no equal in the Wall Street game. 

He gives with liberal hand to church and school ; 
his skill, tact, and measureless success are praised 
of all men. Newspapers pave his way with lauda- 
tions. His word has boundless weight; with a 
sentence he stays a panic and helps to restore con- 
fidence. 

Is not this success indeed? 

Ah, yes ; it is a marvelous story. Here was the 
poor boy facing the world alone, and none was 
poorer. The Ryans, an old family of Nelson 
County, Virginia, an old family of the indomitable 
Scotch-Irish strain, had been utterly ruined by the 
Civil War. The old estate swamped with debt; 
the wolf looking in at the window ; the boy, sixteen 
or seventeen years old, left alone with his aged 
grandmother; the problem of daily bread real and 
uncompromising before them : all this sounds like 
the first chapters of an old-time romance, and yet 
It is but a recital of biographical facts. And there 
Is more to come, as if culled deliberately from the 
roseate fiction of our youth. The poor boy, striv- 
ing to battle with the depressing situation, wins his 
way to the great city (in this instance, Baltimore) 



LAWLESS WEALTH 21 

to look for work. From one place after another 
he IS coldly turned away. Still he persists. At 
last, almost at evening, he enters a dry-goods store. 
The proprietor needs an errand boy. He engages 
young Thomas, whose looks please him, to go to 
work the next morning at seven o'clock. Young 
Thomas takes off his cap and hangs it on a peg. 
He says : 

**If you please, sir, I would rather go to work 
now," and seizing a broom begins to sweep out. 

Does it not sound like a page from the old 
Fourth Reader? 

*What are you doing there, little boy?" asked 
the good banker, looking over the counter. 

^Ticking up pins, sir," said Henry. And on the 
last page he is taken into partnership and marries 
the banker's daughter. 

Do not smile. It is all sober earnest and part 
of the record of a sober, earnest life. The errand 
boy labors early and late at $3 a week. Presently 
he becomes a salesman. Then he is taken into 
partnership. Eventually he marries the proprie- 
tor's daughter. It is the very apotheosis of com- 
mercial romance. 

Meantim.e, he had been looking far beyond Bal- 
timore and the dry-goods business. From the be- 



22 LAWLESS WEALTH 

ginning he had made up his mind to be, if possible, 
the richest man of his times. Upon that determina- 
tion the wide, square, bulldog jaws came down like 
a clamp. It was the time of Jay Gould and Erie, 
of Jim Fisk and the first Vanderbilt. The road to 
fortune was a turnpike to Wall Street. His em- 
ployer was interested in some banking and broker- 
age firm in New York; the young man secured a 
transfer of his activities from Baltimore to the 
golden city of his dreams. There we find him In 
a humble place as clerk or capper or runner or 
croupier for some respectable house In the Street, 
and his energy, tireless industry, and profound in- 
terest in his work soon win him advancement. No 
firm can afford to- overlook the worth of a youth 
that does nothing but study and strive In his busi- 
ness. After a time he feels able to make a start 
for himself. He becomes a partner In a firm : Lee, 
Ryan & Warren. Then he marries. Soon after- 
ward he buys a seat on the Stock Exchange. 

Then came times bad for gambling — 1874. 
Black Friday, the Jay Cooke smash and the col- 
lapse of so many fair firms were only a few months 
behind, and before w^as a long, dreary season of 
prostrate business, silent mills, and unemployed 
hosts. Depreciated paper currency and Inflated 



LAWLESS WEALTH 23 

credit had done their worst. Under such condi- 
tions, the public, having bitter memories and no 
money to lose, will have none of Wall Street, and 
the youthful capper finds but barren pickings. Yet 
young Mr. Ryan, faring in a small, careful way 
through those lean years, did well enough. He 
saw his little operations slowly grow and the tilth 
thereof was the accumulations that were the joy 
of life to him. Certain qualities commended him 
to men that sat In the high places about the Wall 
Street game. He was intelligent, he understood 
the market, he moved quickly — and he was silent, 
always ; a grave, self-contained, taciturn young man. 
That was a great matter ; anything once committed 
to his keeping oxen and wain ropes could not drag 
beyond those iron jaws. Gentlemen having deli- 
cate negotiations In finance found that Mr. Ryan 
was a good man to operate through. He knew his 
business and he could be trusted Implicitly. He 
began to win attention — and commissions; and 
after a time he undertook some little things on his 
own account that resulted well, both In profits and 
reputation. He used to search out the properties 
that were so bad that they must needs be remade or 
perish, and to float with the upward wave when the 
remaking began. He won no great sums, but was 



24 LAWLESS WEALTH 

steadily getting closer to the leaders that controlled 
millions and obtaining their approval as a young 
man of the right sort. 

One of these leaders was of a mind and character 
unusual; the rest fade away into the dull mists of 
commonplace. In a time that has for its distin- 
guishing trait the union of rotten business with rot- 
ten politics, William C. Whitney was a conspicu- 
ously able financial exploiter and a conspicuously 
able political manipulator. I suppose that with- 
out doubt he had the best mind that ever engaged 
in Wall Street affairs, and without doubt he was 
equipped for better things than he achieved. He 
had a big doming head, not very broad but long 
and high, strange blue-gray eyes, very cold, very 
steady, and utterly fearless; a masterful and confi- 
dent disposition; and a knowledge of men, and 
I think contempt for them, beyond any other 
man I have known. He was at will the most 
fascinating and polished man of the world, or 
the most overbearing and intolerable bully. His 
associates always seemed to fear as much as 
they admired him; there are records of directors' 
meetings absolutely terrorized by his indom- 
itable will. In his way he had extraordinary 
mental capacity; his mind was an unresting 



LAWLESS WEALTH 25 

engine, his ambition was inordinate, and but for 
some providential tempering by spendthrift and 
luxurious habits would have made him monstrously 
rich. I need not pretend that he had any overnice 
scruples about methods. He could see a little 
farther than the grubbing moles about him, and 
discerning an object he moved relentlessly toward 
it, sometimes trampling heads and sometimes mire, 
and regarding neither. 

Therein lay for him the talisman of ability, the 
badge that distinguished him from the 500,000, 
from the 1,500,000, and from the 2,000,000. The 
divine gift had this substance and none other. Mr. 
Whitney dwelt his days among the palaces ; he was 
born to a sense of superiority; he married wealth; 
the burden of life was easy upon him. No- one 
may say that the goad of poverty drove him to 
climb from among the 2,000,000 or the 1,500,000. 
But he was a conspicuous example of those that 
having means used wealth to get more wealth for 
which they had no need. 

So many long-forgotten chapters of history hang 
about these records! The old New York Cable 
Railroad, for instance — how many years have 
passed since we have heard a mention of that once 
menacing specter, or of Charles P. Shaw, the eccen- 



26 LAWLESS WEALTH 

trie genius that created it and with It scared New 
York from its rest? The thing actually had a 
charter covering almost every down-town street in 
the city and extending north to Yonkers, all to be 
operated by steam and cable. Only one other man 
in New York had looked so far ahead as Charles 
P. Shaw into the street railway possibilities, and 
that was Mr. Whitney. He had been Corpora- 
tion Counsel of the city from 1875 to 1882, and 
among the things he had learned while in office 
was a respect for the urban transportation business. 
He made up his mind that he would get into that 
business and be rich. Shaw and his associates were 
exploiting the proposed cable road as a rival of the 
old Arcade scheme (of which a section was once 
constructed in lower Broadway) , when Mr. Whit- 
ney forced his way into the concern He needed 
somebody to assist him in certain lines of endeavor, 
and for such labors chose Mr. Ryan, whom he 
made treasurer of the company. 

Mr. Ryan was at that time nearing middle life 
and known among the discerning as one of the 
shrewdest and safest of the small operators in the 
Street. He had no foolish pride about accepting 
small orders, nor about performing duties not 
usually esteemed a part of the brokerage business, 



LAWLESS WEALTH 27 

provided the orders or the duties involved proper 
recompense and the good-will of those that it was 
well to know. Furthermore, some advantages lay 
in his comparative obscurity and his silence. He 
practised assiduously the scriptural injunction con- 
cerning the intercommunication of right and left 
hands, and even at that time no one ever knew what 
he was doing until it was done. Hence he went 
upon any matter unremarked, and his noiseless and 
unobtrusive presence drew none of the newspaper 
or other attention that might be undesirable. 

For years there had been talk of a street-car 
line in Broadway below Union Square, but the wise 
men of the city (of whom there was even in those 
days no lack) always proved conclusively that a 
street railroad In Broadway was utterly impossible 
because of the crowded traffic. Mr. Whitney and 
Mr. Jake Sharp were among those that scorned the 
arguments of the wise. Sharp was a heavy-jowled, 
heavy-bearded and scowling man of a type now 
practically extinct, part bullying contractor, part 
rough politician, and part shrewd and unscrupulous 
schemer and manipulator. It was a strange turn 
of fate that pitted this thick-skinned, crude and 
violent person against the polished and courtly 
Whitney. Sharp had long wanted the Broadway 



28 LAWLESS WEALTH 

franchise from Fifteenth Street to Bowling Green 
for his Broadway Surface Railway Company, a 
concern with a merely paper existence; Mr. Whit- 
ney desired it for the Cable Railroad Mr. Sharp 
won the prize — ^'for $500,000 in bribes paid to the 
New York Board of Aldermen. The Cable Rail- 
road is said to have made another offer, not quite 
so good. Mr. Sharp got his franchise and built 
his road practically in a night. He was a thick- 
headed man of one idea, but he knew what an inr 
junction was, and took no chances. 

This was in 1 884. The next year Mr. Whitney 
went to Washington as Secretary of the Navy in 
the first Cleveland cabinet, but he retained his no- 
tions about the street railroad as a source of wealth. 
When, four years later, he returned to his- active 
career in New York, it was to lay hands upon that 
very Broadway surface franchise that Sharp had 
wrenched from his grasp — so strangely do things 
come about in this world — and to get it for a small 
fraction of the sum Sharp paid. As he won this 
long-coveted prize, he cemented likewise the most 
remarkable combination that has ever been known 
in our financial affairs. Mr. Whitney had closely 
observed the amazing achievements (to be related 
later) of P. A. B. Widener and William L. Elklns 



LAWLESS WEALTH 29 

in the Philadelphia traction field, and he rightly 
estimated these gentlemen as desirable partners in 
his enterprise. With these he naturally associated 
Mr. Ryan. 

The syndicate thus formed endured for many 
years, exercised almost boundless power, came, as 
we shall see later, to deal in many things besides 
street railroads, in more than one way became his- 
toric, and made more money, more easily, more 
rapidly, and on smaller investments than any other 
association of men ever formed in this world. 

Of these great deeds we shall have to tell here- 
after. For the present I want to go back to the 
story of the Broadway franchise, because that con- 
tains matter highly edifying to all desirous of know- 
ing the secrets of sudden wealth. 

After Mr. Whitney went to Washington the 
whole scandal of the purchased aldermen burst 
upon New York. A public conscience that many 
persons had believed to be atrophied awoke to a 
violent if somewhat brief activity. Police Inspec- 
tor Thomas Byrnes made a prosecution inevitable 
by wringing from one of the guilty aldermen (who 
happened also to have other black marks on his 
record) a full confession. The weapons of the 
law that it had been supposed could never be used 



30 LAWLESS WEALTH 

against bribe-takers were thus thrust suddenly Into 
the hands of the public prosecutor. Many alder- 
men were Indicted, many fled, three confessed, a 
few were convicted. Sharp himself narrowly 
escaped Sing Sing. Then, ostensibly as an act of 
righteous retribution upon all this shameful mis- 
doing, the legislature was cleverly Induced to the 
very unusual step of annulling the charter of 
Sharp's company, which necessarily went Into the 
hands of a receiver. The franchise was still there 
and Immensely valuable, but the company had no 
legal existence and the railroad was operated by 
another concern. From this chaotic and (as you 
can readily understand) much depreciated state it 
was rescued when Mr. Daniel S. Lamont, acting 
for the WhItney-WIdener-Elklns-Ryan syndicate, 
bought the property for $50,000. 

The history of public utilities in the United 
States has always reeked with the corruption of 
public officers, but It has few chapters that equal 
the story of business politics in the Broadway fran- 
chise deal. Previous to Sharp's victory the gift 
of the franchise lay In the hands of the aldermen. 
The way to get possession of the people's streets, 
according to the accepted methods of the public util- 
ity corporation, was to bribe the aldermen to betray 



LAWLESS WEALTH 31 

their trust and (defrauding the people) to deliver 
the highways to the profit-making of the corpora- 
tion. Several companies (one of them a mere 
blind for another) composed of gentlemen of the 
most eminent respectability, engaged in a furious 
competition for the prize thus to- be gained by the 
dirtiest and most injurious of all crimes. The bid- 
ding rose and rose until in the scramble bidders 
and bidden alike lost their heads. Truly it was 
a mad, mad race. On both sides all thought of 
the statutes was forgotten while the companies bid 
against one another and the aldermen raised their 
prices. A more extraordinary spectacle has not 
been seen In any legislative body; a mania seized 
upon all persons concerned : there was scarcely any 
concealment; you would have thought the selling 
of votes was as legitimate as the selling of peanuts. 
You that dwell where the public utility corpora- 
tion does not rot out the soul of civic honesty, if 
any such place there be, will find it difficult to think 
I am not exaggerating ; and yet I do but repeat the 
records. The newspapers soon became well aware 
of what was going forward. One Sunday after- 
noon a special meeting of the Board of Aldermen 
convened in the New York City Hall. It came 
not to discuss any measure of municipal legislation. 



32 LAWLESS WEALTH 

but to decide once for all which of the tendered 
bribes was to be accepted ; for how much illegal and 
forbidden plunder the streets of the people of New 
York were to be delivered over to an association 
of eminent and respectable bribers. Debate ran 
high among men that favored selling their honor 
to this company or to that; the relative advantages 
of the different bribes were weighed and consid- 
ered as if they represented legitimate transactions 

'}in every-day business. A reporter, going aimlessly 
about, wandered into the City Hall and heard 
voices raised in vehement discussion. He turned 
curiously in the direction whence the voices came. 
They led him to the council chamber. He opened 
the door and stood there unobserved, a witness of 
one of the most memorable scenes in American his- 
tory — -the open sale of the rights of the people of 
New York to and for the benefit of some law- 
breaking palace builders. 

Soon the public as well as the newspapers became 

^morally sure that here was a huge villainy afoot, 
but not even shame could stop the men possessed 
of this madness for a share in the golden stream, 
thus for a moment diverted from the palaces. The 
rival companies raised their bids. At last one of 
them offered to pay for the Board of Aldermen 



LAWLESS WEALTH 33 

$750,000, of which $250,000 was to be in cash 
and $500,000 in stock of the company. Sharp 
met this with an offer of $500,000 in cash on the 
nail. The aldermen, crazed with a wild savage 
lust for gold, snatched eagerly at the offer of cash 
In hand. Sharp won, the people's streets were de-* 
livered over to him, the bribes were pocketed. 
Very strange scenes were witnessed when the money 
was handed about among the men that had been 
purchased, and were thus revealed In the reversion 
to primitive appetites. Men went snarling and rag- 
ing about the City Hall under the Impression that 
they were to be defraud*! of their share in the 
plunder- then being apportioned. One alderman 
attempted with force to take another alderman's 
share, and In the very alderm^nic chamber, prac- 
tically in thje public view, one that thought he had 
been overlooked assaulted the distributor of bribes 
and tried to strangle him. 

But the franchise was awarded, the machine was 
set up for drawing from the pockets of the public 
the coins of which the palaces are built. When 
we come later to consider what the workings of 
this machine have meant for the 1,500,000 and the 
2,000,000, It will be well for us to remember that 
its foundation was erected In the most appalling 



34 LAWLESS WEALTH 

public corruption known (up to that time) in this 
country, and that the men really guilty of Insti- 
gating the corruption were never punished nor ever 
in any danger of punishment, in spite of the ex- 
plicit provisions of the laws that define and prohibit 
such crimes. 

Yet the painful fact remains clear to those famil- 
iar with actual conditions that all these incidents 
represented only the culmination of a general sys- 
tem of debauchery that permeated most of the 
legislative bodies of the country whenever they 
had the power to give away the peopleV streets or 
tht people's highways. We that live absorbed In 
our immediate affairs and guess the real life of the 
country only when some potent phase of It is thrust 
compellingly upon our attention, can have little Idea 
of the extent of these practices. But think for a 
moment ! Was it for reasons of morals or sanita- 
tation that the railroad companies maintained lob- 
bies at every State legislature In the United States? 
Or da you think It really meant nothing that the 
railroad interests Interfered so persistently In party 
politics and party management? I have seen the 
head lobbyist of a certain railroad standing at the 
door of a State political conyention and with foun- 
tain pen write upon a handy pad of annual passes 



LAWLESS WEALTH 35 

the names of all the delegates that would promise 
to vote for the candidates, favored by the railroad 
interests. For twenty years there was in some 
States of the Union hardly one political convention 
in which the railroad interests were not actively 
concerned and in which they did not win their way 
by exactly these means. Or, returning to the par- 
ticular subject we have in hand, as a matter of fact, 
how many gas, traction or electric light franchises 
are granted on their plain merits as a surrender 
of the people's highways to private greed? How 
many are secured without some application of the 
methods employed by Sharp and his rivals ? And 
finally, is there any spectacle more extraordinary, 
incongruous and comical than we present when we 
wildly cheer a public officer that undertakes to pun- 
ish bribe-takers, while at the same time we stead- 
fastly refuse to give up the obsolete and unnecessary 
device of the public service corporation, the peren- 
nial fountain-head of nine-tenths of the bribery and 
political rottenness that makes the patriotic Amer- 
ican hang his head? 



CHAPTER III 

THE FIRST DEVELOPMENTS OF THE FORMULA FOR 
SUDDEN WEALTH 

It is an agreeable dream to assume that success- 
ful men create their own occasions and with skill 
and mighty mind build their fortunes in spite of 
fate and circumstance; whereas there is no other 
lesson of observation so sure as this, that oppor- 
tunity thunders long and loud at many a man's door 
before he wakes to have greatness thrust upon him. 

Take for an example this public utility business 
that Is the chief source of sudden wealth in Amer- 
ica; for years and years It lay there In all men's 
sight and nothing came of It but the simple public 
utility. Street-cars were operated In this country 
for more than a generation before any one sus- 
pected that of all gold-mines the richest was con- 
cealed beneath the humble five-cent fare ; and when 
the discovery was finally driven into the heads of 
men, the process was infinitely slow and fortuitous 

36 



LAWLESS WEALTH 37 

and not due to any man's prescience. By chance 
and by circumstance the truth grew up, for the 
greatest profits of the public utility arise from its 
union with corrupt politics, and that union was an 
evolution and had nothing to do with any man's 
gifts. If the public utility had developed at a time 
when political bosses and devious financial games 
had been made impossible, there would never have 
been any great fortunes drawn from the street rail- 
road business, ability or no ability, gifts or no gifts; 
a fact that might possibly moderate our transports 
as we contemplate certain of the glittering white 
palaces. 

Philadelphia saw the beginning of the real trac- 
tion industry of America, and the Centennial Ex- 
position of 1876 disclosed the first sure glimpse of 
the golden treasure. Large numbers of people 
must be transported about the city; the horse-hauled 
street-car was the only vehicle for these migratory 
millions. Up to that time the street railroad had 
been by capital despised and by the public tolerated 
as a curious but necessary evil. The cars were 
slow and scarce; the service was in its Infancy. In 
Philadelphia, as In other American cities, there was 
a separate company for every line of track, small 
companies of obscure and hardy investors; for to 



38 LAWLESS WEALTH 

capital sitting upon millions these two streaks of 
rust and a jangling car that collected nickels seemed 
too small to deserve the attention of adult finan- 
ciers. Slowly the fact became apparent that the 
business was not really to be contemned, for it con- 
tained two elements that made it worth while. 
First, it built up suburbs and had therefore within 
it the power greatly and rapidly to extend itself 
without effort, without care, without investment on 
the 'part of its owners ; for the more suburbs, the 
more people were to be carried. Second, it was 
actually possible by debauching public servants, cor- 
rupting politics, buying elections, and forming al- 
liances with the bosses, to secure free and unre;- 
stricted possession of the public highways not for 
one year nor for two, but for a hundred years or a 
thousand. A child might see that these priceless 
privileges could be used toward fortune building, 
and in a short time a child might also see that far 
beyond even these bright prospects the true profits 
of the business lay in the manipulating of securities 
and not in the transporting of passengers, a fact 
that will become more and more apparent as we 
turn over these long-neglected records. 

Into this fertile and lovely field came now the 
men that long reaped its golden harvests. To speak 



LAWLESS WEALTH 39 

disparagingly of such success is a form of lese- 
majeste. Fain would I say that the records of 
these achievements reveal remarkable qualities and 
amazing mental attributes, although it remains 
quite clear that up to the very gates of their good 
fortune these men were driven and thrust by fate. 
To the first of them, indeed, Charles T. Yerkes, be- 
longed a certain combination of hardihood, au^ 
dacity, dexterity, and persistence that was rather 
out of the common. But he had served some 
months as a convict in a Pennsylvania prison, and 
that experience had doubtless, and in more than 
one way, resulted to his advantage. It gave him 
time for reflection, taught him caution, and indi- 
cated how close with safety a man might steer to 
the reefs of the penal code. 

In a measure Mr. Yerkes's trouble had been 
brought about by the Chicago fire. He had been 
in Philadelphia a daring young broker, and had 
won repute by successfully handling State bonds 
with the old banking house of Drexel & Company. 
With his prestige and magnetism he induced Joseph 
F. Marcer, who was then City Treasurer of Phila- 
delphia, to invest money in Chicago. Some of the 
money, much of it in fact, was the city's. When the 
fire came it cleaned out Yerkes and Marcer and in 



40 LAWLESS WEALTH 

that crash the theft of the city funds was discovered. 
Yerkes was indicted as accessory to the embezzle- 
ment, convicted, and sentenced to two years and 
four months' Imprisonmnent; Marcer received a sen- 
tence about twice as long. Yerkes was pardoned 
after seven months, and returned to Philadelphia 
In nowise disheartened by his misadventure, for 
almost at once he resumed his labors In the financial 
field and began to retrieve his fortune. 

You will find now In the best residence region of 
Philadelphia a magnificent marble palace, as grand, 
as imposing, as costly as any in New York or else- 
where, and surely one of the most beautiful of the 
homes of the fortunate. It contains a really won- 
derful art-gallery and many rare books and tapes- 
tries; It Is one of the show-places of the city; the 
natives point It out with pride and strangers regard 
It with just admiration. 

That house was born of the defalcation of Mar- 
cer and the plight of Charles T. Yerkes. It be;- 
longs to P. A. B. WIdener. About forty years 
ago he was a young butcher In Spring Garden Mar- 
ket, In no way distinguished from two hundred 
other butchers there except that he took an Interest 
In partisan politics, belonged to the political organ- 
ization of his ward, and worked at the polls on 



LAJVLESS WEALTH 41 

election day. As a reward for these services his 
party found use for him as a lieutenant and lobbyist 
about the Pennsylvania State Legislature at Har- 
risburg, and when Marcer was removed from 
the City Treasury the young butcher got the 
vacant post. In those days the City Treasurer of 
Philadelphia was allowed certain fat perquisites. 
Hence it was a good thing, and when young Wid- 
ener relinquished the office, he was legitimately the 
richer. 

The butcher was a friend of Yerkes, who had 
also mixed much in the odorous pool of Philadel- 
phia politics. Yerkes, being released from the pen- 
itentiary, looked about for something to do and 
stumbled upon the street railroad business. A piece 
of scrap-iron known as the Seventeenth and Nine- 
teenth Street line was offered to him on credit at 
four cents on the dollar. He took it. The Expo- 
sition came on and traffic greatly increased. Mr. 
Yerkes needed money. It may be supposed that 
he badly needed money. Money was hard to come 
by. Mr. Yerkes tried a very doubtful experiment. 
On the rattle-trap contrivance he had bought he 
issued a small amount ot bonds — about $200,000 
worth, it is said. Very likely to his great amaze- 
ment, he found that these bonds could be floated. 



42 LAWLESS WEALTH 

With the proceeds he secured another link of rail- 
road and issued more bonds on that, and thus the 
whole system was started on its truly wonderful 
career through the choicest realms of finance. Mr. 
Yerkes had hit upon the great truth that in normal 
times somebody can be found to buy a bond on any- 
thing, and that with the power to issue bonds the 
gathering of great fortunes Is simpler than the 
gathering of ripe apples, for they fall from the 
tree into your very hand and while you sleep. 

When Mr. Yerkes had made the discovery that 
he could issue bonds on his scrap-iron, sell them, 
and with the proceeds buy more scrap-iron, he 
added to his original purchases, repeated the pro- 
cess, and in the end at a goodly profit sold the whole 
collection, scraps, bonds, and all. At that time, 
Mr. Widener, being no longer City Treasurer, was 
also looking for something to do-. He learned 
from his old friend Yerkes how good the street 
railroad business looked, and with a few close allies, 
William L. Elkins, the late William H. Kemble, 
and others, he bought some scrap-iron on his own 
account. In a short time they discovered that all 
Mr. Yerkes had said about this business was true, 
and that still more was true, because upon them 



LAWLESS WEALTH 43 

also loomed the dazzling prospects of the wealth 
that lies behind manipulation. 

From this you are not to assume that these gen- 
tlemen nor any of them originated the Great Amer- 
ican Idea la finance. That were to wrong his- 
tory, to wrong the dead and them. They merely 
applied to their purchases the principles of that 
Idea after repeated exploits by others had brought 
it to the precision of a familiar scientific formula. 
It might be called the Agreeable Formula for Mak- 
ing Something from Nothing, or it might be called 
the Formula for Getting Rich by Levying Tribute 
on the Public. The essence of it is to gather 
money by compelling millions of people in this and 
succeeding generations to pay exorbitant prices for 
poor services. A simpler device never entered the 
human mind; of ingenuity or novelty it had just 
so much as there is in the pistol of a highwayman. 
To get control of one piece of street railroad, good 
or bad ; to issue upon it all the bonds and stocks it 
would bear; to sell these, regardless of their real 
value, to the confiding public; to use the proceeds 
to buy another piece of railroad; to repeat the 
process as long as there was anything worth buying 
— ^what could be simpler ? No risk was incurred, 



44 LAWLESS WEALTH 

no capital required. The confiding public attended 
to all that. 

The Philadelphia gentlemen were not slow to 
understand the good thing thus opened before them. 
It was a golden snowball rolling down-hill and be- 
coming an avalanche of money. Each railroad 
acquired by them in turn acquired another, without 
trouble, without labor, without effort, and without 
cost. The owners of the device were made rich 
while they slept; the entire population and all the 
future labored for them while they toiled not nor 
spun. For every bond and every coupon on every 
bond issued to buy these railroads the public must 
needs furnish the money, now and for many years 
to come. But the gentlemen for whom the public 
bought the road — they furnished nothing but their 
agreeable presence and their happy homes. 

For all this, of course, they had abundant war- 
rant and shining examples in American financial 
history. Jay Gould had shown the precious potency 
of the Agreeable Formula when he watered the 
stock of Erie from $17,000,000 to $78,000,000 
and made himself rich. Since his achievement 
practically every railroad corporation had followed 
in his august footsteps, until to overcapitalize an 
average railroad had become a far more important 



LAWLESS WEALTH 45 

source of wealth than to operate it. Mr. Yerkes 
and his friends imitated Mr. Gould and then bet- 
tered their instruction. Gould loaded two or three 
railroads with water and departed with the bagged 
proceeds. They made the loading of one railroad 
the means to secure a second and the loading of the 
second a means to secure a third, and so on until 
everything in sight was loaded — and theirs. 

How easily this good thing could be worked was 
demonstrated by Yerkes's Seventeenth and Nine- 
teenth Street lines. That grimy genius, Matthew 
Stanley Quay, who had an infallible scent for graft, 
business and other, succeeded Mr. Yerkes in the 
Seventeenth and Nineteenth Street lines, which he 
helped to ^'reorganize" into the Continental Street 
Railway Company. The Kemble-Widener-Elkins 
people ''reorganized" their Seventh and Ninth 
Street lines into the Union Passenger Railway 
Company, with which, by the handy processes al- 
ready referred to, they amalgamated one small line 
after another, until their system had swollen to a 
portly size. In 1880 they had accumulated enough 
watered stock to lease Mr. Quay's company. In 
1883 ^hey took in the Tenth and Eleventh and 
Twelfth and Sixteenth Street lines. Then they 
leased the Chestnut Street and Market Street roads, 



46 LAWLESS WEALTH 

among the most important in the city. The next 
year they reorganized again, this time into the Phil- 
adelphia Traction Company; capital, $30,000,000; 
nominal and ostensible cash investment, $7,000,- 
000; actual cash investment, next to nothing; 
profits, enormous ; prospects, unlimited. 

Good business. There were now in Philadelphia 
three street railroad companies, and nO' more, the 
many little lines having one by one been swallowed 
by these anacondas. The Philadelphia Traction 
Company next proceeded to swallow the other two, 
and thus became possessed of the entire street-car 
service of the city, 426 miles of rail. This, of 
course, necessitated another ''reorganization," and 
equally, of course, another flood of water. ''About 
this time look out for high tides," says the financial 
almanac whenever there is a "reorganization" 
project about; "reorganizations" being invariably 
floated into success upon huge issues of fictitious 
securities. The syndicate's "reorganized" and 
freshly watered concern took the name of the 
Union Traction Company. 

The history of this corporation for some years 
eclipsed all records of fortune building in this coun- 
try, and still stands unrivaled as a factor in business 
politics. It has meant much more to Philadelphia 



LAWLESS WEALTH 47 

than a mere enterprise to transport passengers or a 
mere enterprise to* manipulate stocks and bonds. 
Gradually the public utility corporations had come 
to own the city government of Philadelphia just 
as absolutely as they ever owned any acre of land 
or team of mules. They elected city officers and 
determined city policies. They maintained the 
most perfect system for political corruption that 
has ever been known among our cities. The rest 
of the country has heard much about the *Thiladel- 
phia ring." The very life and substance of the 
ring were the public utility interests and the fore- 
most of these interests was the traction corpora- 
tion. 

Under the system the ring established there were 
cast every year in Philadelphia from 60,000 to 
80,000 fraudulent votes, and it was by means of 
these votes that the public utility interests retained 
their grasp upon the city government and upon the 
privileges that made them rich. Every criminal 
enterprise in the community had share in this colos- 
sal structure of fraud; the respectable stock com- 
pany went into partnership with the brothel for 
the maintenance of existing conditions. The money 
that stole elections and stuffed ballot-boxes and 
hired criminals to beat citizens, all to keep this 



48 LAWLESS WEALTH 

gang in power, was supplied by the public utility 
corporations. For years they systematically made 
of the city government in Philadelphia something 
before which all patriotic Americans bowed them- 
selves in humiliation and unutterable shame; they 
did it, these corporations by the public so foolishly 
endowed with special privileges. 

For years dishonest aldermen, crooked public 
officers, election thieves, repeaters, floaters, thugs, 
keepers of criminal resorts, the men that falsified 
returns, were actively leagued with them. Every 
protected dive In Philadelphia, every Illegal drlnk- 
ing-place, every house of ill-fame, paid a regular 
tribute to the ring, not In money, but In the votes 
that kept the grip of the ring upon the city. Each 
of these lawless resorts was recorded In a list with 
figures representing the number of Illegal votes it 
must furnish. So long as It furnished these votes 
It could continue to break the law; if It failed to 
furnish these votes It must cease toi do business. 
From these Illegal votes and others was developed 
an autocracy practically as perfect as a satrap's. 
No man could ordinarily be elected to anything ex- 
cept by the will of the men that wielded this power. 

In all these operations the traction company was 
most conspicuous. It was to misgovernment In 



LAWLESS WEALTH 49 

Philadelphia what the Pennsylvania Railroad was 
to misgovernment at Harrisburg. If its sole busi- 
ness had been to make the American city a symbol 
around the world for all things detestable and dis- 
honest it could hardly have done more to achieve 
that result. It has in its sinister history some of 
the most astounding legislation ever secured under 
any form of free government anywhere, and a gen- 
eration of flawless administration could not efface 
the stains it has fixed upon the city from whose 
people it has drawn its countless millions of profits. 
Such was the story of this development in Phila- 
delphia, where, because of the vast territorial ex- 
pansion of the community, street railroads were 
become an absolute necessity and where the For- 
mula worked without a hitch. Some economies 
resulted from the consolidations effected and occa- 
sionally some slight improvements, but otherwise 
the public got nothing from the transaction except 
the pleasure of building the fortunes of the syndi- 
cate and the entrancing prospect of many bonds and 
coupons to be paid in the future. After a few 
years of these conditions only two defects therein 
marred the perfect joy of the syndicate gentlemen. 
One was that the motive power, which was still 
horse, cost sixty-five per cent, of the receipts, and the 



50 LAJFLESS WEALTH 

other was that no one could tell how long the people 
might submit to having their highways used for 
a private profit-making device. As to motive 
power, the overhead trolley was installed (against 
the indignant protests of the outraged citizens), 
and that not only effected a saving of forty per cent, 
in expenses, but built vast new suburbs to the In- 
creasing of business and the swelling of dividends. 
And as to the highways, It presently appeared that 
there was much to be said on both sides. 

Here I must beg leave to digress for a moment 
Into Incidents. 

To the foreign visitor, the long-suffering patience 
of the American community is an endless source 
of amazed comment, and perhaps justly so. Cer- 
tainly, in no other part of the globe, so far as I 
have observed human affairs, would people endure 
what Americans daily endure of insult and injury. 
One might at times be tempted to think that they 
were obliged to submit to the extortions and mis- 
handlings of their public utility corporations, that 
they had no means of redress or escape. How 
otherwise, for Instance, could a foreigner explain 
the anomalous fact that the city In which the Decla- 
ration of Independence was signed had so long en- 



LAWLESS WEALTH 51 

dured a tyranny so gross and bestial as the 
Philadelphia Ring? 

But they might not always endure it, there was 
the point; they might not always leave the for- 
tunate gentlemen in the quiet possession of these 
great privileges. So the gentlemen proceed to se- 
cure for their fortune-making a foundation that 
should be beyond all chance of disturbance. The 
public utilities combination had now far progressed 
in its arts of municipal corruption ; it could, in fact, 
do as it pleased with the city government. It had 
elected the mayor and most of the aldermen ; had 
chosen them for reasons of its own, and knew upon 
whom it could depend. A dummy company was 
formed. It applied for a franchise covering all 
the remaining streets, avenues, and alleys in the 
city. Mr. John Wanamaker, for patriotic mo^ 
tives, sought to prevent this outrage by making an 
offer to operate the public's traction utility for the 
public good. The combination's mayor, with os- 
tentatious contempt, flung the offer upon the floor. 
The State Legislature at Harrisburg met one night 
in extra session. The enabling act necessary to the 
granting of the franchise was rushed through both 
houses, which sat up until three o'clock in the morn- 
ing to pass it. A special train carried it to Phila- 



52 LAWLESS WEALTH 

delphia. There the city council was convened in a 
special meeting. As soon as the enabling act was 
received, the necessary ordinance was introduced, 
and passed, making to the dummy company a free 
gift in perpetuity of the public highways of Phila- 
delphia. This done, the aldermen lolled back in 
their chairs and sang ribald songs. One of them 
long lingered in the memory of Philadelphia be- 
cause of its chorus^ which contained these significant 
lines : 

Hail ! hail ! the gang's all here ! 

What the hell do we care ? What the hell do we care ? 

Later, as might be expected, the dummy com- 
pany sold to the Union Traction Company the 
amazing franchise thus secured, and the anxiety of 
the company was relieved ; there was no longer any 
question about possessing the streets ; it could go on 
to reap forever the golden harvest; it had won a 
great victory. 

But now, you of the unable and ungifted, that 
make no profits and joy in no golden stream, how 
think you this momentous triumph was won? 

The public utilities alliance had taken the money 
wrung from the people by one set of excessive priv- 
ileges to obtain by corruption from the people's 



LAWLESS WEALTH 53 

representatives far greater and more profitable priv- 
ileges. That was all. 

A similar situation confronting the same inter- 
ests some years later had slightly different results, 
a fact that casts some doubt upon the perpetuity of 
the Formula for fortune-building, and raises a 
question whether the patience of the American peo'- 
ple is, after all, eternal. Among the vast concerns 
of the gentlemen that operated the traction trust 
was gas — the United Gas Improvement Company 
being one of their business aliases. About ttn 
years ago, under pretense of supplying a new and 
better kind of gas, the United Gas Improvement 
Company secured a lease for ten years of the city 
gas-works. By the terms of the lease a renewal 
for another period was possible after the expiration 
of eight years. The question of renewal came up 
in 1905 and the allied interests planned in their 
usual way to add to their fortunes by securing a 
lease monstrously to their benefit. 

But the public discontent for once broke over the 
barriers of custom and fraudulent elections, and 
for once the allied interests were defeated; the force 
of public indignation was plainly too great to be 
withstood. When mobs gathered in the placid 
Philadelphia streets and with ropes in hand prom- 



54 LAWLESS WEALTH 

ised to hang the aldermen, there was evidently no 
time for gangsters considerate of their own welfare 
to be making further raids on the people's purses. 
So the precious scheme lapsed. In the height of 
the trouble the residences of prominent men that 
^ supported the gang were surrounded by threatening 
mobs and for several days the inmates deemed it 
advisable not to appear on the streets, a fact that 
indicates the extent to which people were aroused. 
This is the way the thing has gone in Philadel- 
phia ; it is the way it has gone elsewhere. Rotten 
business and rotten politics — the two are invariably 
mingled in these triumphs. Without the corrupt- 
ing of politics, the sudden fortune builders could 
never have obtained their huge privileges ; without 
their huge privileges, they could never have pos- 
sessed their gleaming palaces. So, flat-dweller 
with $1,639 ^f toi?i\ possessions, here is one way in 
which the difference in brain-cells manifests itself. 
I Rather poor, it seems — does it not? — and cheap 
f ,and stained and tawdry look the gleaming palaces 
so gained, when you think of stuffed ballot-boxes, 
debauched public officers, and that soiled and 
wretched alliance with the dive-keeper and the 
brothel. The man that lives in his little flat with 
his $1,639 of ^0^^^ possessions and spends all his 



LAWLESS WEALTH SS 

days in this hard struggle with rent bills and 
butchers' bills may never be nearer to a fortune 
than the mass of his unable and ungifted fellows, 
and yet he may feel that he has done nothing to 
debase public virtue nor to lower his country in the 
eyes of the world. And there must be something 
in that; when you stop to think of It, there must 
indeed be a great deal in possessing that conscious- 
ness. We may doubt if there be anything in the 
gleaming palaces that makes up for the lack of it. 

But power! Those miles upon miles of great 
sky-reaching structures massed solidly in the busi- 
ness region — sNt did well to take them for the em- 
blems of huge, indomitable, irresistible, abnormal 
power. And here are some of its manifestations, 
strange and subtle. For what ordinary force could 
compel a legislature to sit up all night and a city 
council to meet in extra session that a monstrous 
swindle might be perpetrated upon a community? 



CHAPTER IV 

THE FORMULA FOR WEALTH AS IT WAS WORKED 
IN CHICAGO AND NEW YORK 

All this is to forereach a little upon my nar- 
rative. Long before the Widener-Elkins com- 
bination had secured a grip on Philadelphia, Mr. 
Yerkes, having enlarged in Dakota and Minnesota 
his experience with a gullible public, bent all his 
gained knowledge upon the street-car system of 
Chicago, which had never been exploited. He 
came to Chicago with $20,000, said to have been 
borrowed money, and asked for an option on some 
scrap-iron street railroad on the North Side. He 
found that some one else had an option that would 
expire on a certain day. 

''At what time on that day?" asked Mr. Yerkes. 

''At noon," said the cashier of the bank that was 
financing the deal. 

Mr. Yerkes went away and on the specified morn- 

56 



LAWLESS WEALTH 57 

ing returned with his $20,000 certified check in his 
hand. He sat facing the clock, which he watched 
patiently. The instant the hands reached twelve 
o'clock, he leaped at the cashier with his check. 
The option gave him the required wedge into the 
concern. In a short time he had hypothecated the 
stock, borrowed money on It, got more stock, se- 
cured control, started the printing-presses on a 
bright new line of stocks and bonds, and possessed 
himself of the whole institution ; gaining moreover 
a surplus from which he repaid the $20,000 he had 
borrowed for the option, thus securing the property 
without investment or cost, which, I may say, is the 
universal rule in all these operations. 

He now proceeded to apply his Philadelphia ex- 
perience, issued more securities, bought more roads, 
milked them with construction company and other 
devices, and eventually, piling one corporation upon 
another and one "reorganization" upon another, 
emerged with the Union Traction Company of 
Chicago embracing all the lines of the city except 
those upon the South Side. As a concrete illustra- 
tion of his methods and their results, I may say 
that the Union Traction Company was capitalized 
at $120,000,000 and in the height of its prosperity 
It was estimated by an expert examiner to be worth 



58 LAWLESS WEALTH 

as a going concern $16,000,000. Except for leg- 
islation, aldermen, and newspapers, it cost Mr. 
Yerkes nothing. As a system of transportation it 
was the most picturesque lot of junk ever seen in 
this world and furnished undoubtedly the worst 
service. Jimk is the right word for it; Mr. Yerkes 
said so himself. ''The secret of success in my 
business," he once observed, ''is to buy old junk, 
fix it up a little, and unload it upon other fellows." 
I may remark in passing that there was very little 
fixing up in* the case of the Union Traction Com- 
pany of Chicago. Why there should have been 
any more, indeed, is not apparent, since the good 
people of Chicago' not only endured Mr. Yerkes 
and his methods, but in fifteen years supplied him 
with $40,000,000 of net profits on an investment 
of nothing; with the which comfortable assets he 
presently departed from the city that had, at such 
an expense to itself, made him so enormously rich. 
He used a part of the Chicagoans' money to buy 
control of the underground railroad system of Lon- 
don, to which untried field he devoted his energies 
the rest of his life. 

But he had stayed long enough to make an en- 
during place for himself in Chicago's history. Only 
one cloud there obscured his success. The junk 



LAWLESS WEALTH 59 

that he manipulated v/as operated under franchises. 
That is to say that when the people of Chicago 
presented their streets to the street railroad com- 
panies, a date was set at which the right of posses- 
sion should expire. For most of the roads the % 
date was July i, 1903, and its approach worried 
Mr, Yerkes. To his ability, energy, and foresight 
the" expiration of the franchises seemed of very 
great importance. We know now that in this his 
ability, energy, and foresight deceived him, for It 
was of very small importance. The supposition 
was that when the date of the franchise* should ex- 
pire the people would resume possession of their 
highways and the companies would be unable to 
operate their profit-making devices therein. Mr. 
Yerkes and many others believed this to be true. 
It never occurred even to him that the colossal 
good-nature of the people extended to the length 
of allowing the companies to operate these devices 
without any franchise or other rights. Yet such 
is the fact. In New York we have seen gas com- 
panies continue to occupy the streets many years 
after their franchises have expired and have even 
seen the expired franchises counted as assets of 
great value. In Chicago we have seen a street 
railroad franchise expire and the company placidly 



6o LAWLESS WEALTH 

continue to operate its cars exactly as if the fran- 
chise were still valid, defying meanwhile every at- 
tempt to eject It. Hence, Mr. Yerkes must cer- 
tainly have been in error, and having once pos- 
sessed himself of Chicago's streets, in all probabil- 
ity he could have continued until the day of his 
death to turn them into profits. 

However, Mr. Yerkes thought it was necessary 
to have his franchises renewed and went sedulously 
to work for that end. The law of the State for- 
bade the granting of any franchise for a longer 
term than twenty years. Mr. Yerkes went to the 
legislature, which he well knew how to manipu- 
late, and secured the introduction of a bill repealing 
the twenty-year limit and granting him a franchise 
for fifty years. This was the celebrated Humphrey 
bill. A tremendous ou4:burst of public indignation 
followed its appearance and its sponsors in the 
legislature lost heart. The bill was quietly allowed 
to die in committee. Mr. Yerkes waited a little 
and presently the equally notorious Allen bill made 
Its appearance, authorizing the city council of Chi- 
cago to grant Yerkes a fifty-year franchise if it 
should see fit to do so. This bill was passed — in 
haste. As there was In the State of Illinois not one 
human being except Mr. Yerkes that desired to 



LAWLESS WEALTH 6i 

have it enacted and as probably there were very 
few that did not fully understand the nature of the 
reasons for Its passing, the extent of the resulting 
scandal is easily understood. 

The battle was now transferred to the city coun- 
cil. Mr. Yerkes had been long and skilfully at 
work and had secured a clear majority of the alder- 
men. He looked, therefore, toward an easy vic- 
tory. But the popular wrath was aroused. The 
thing was too palpable, the corruption was too 
gross. Indignation meetings began to be held. 
The newspapers were flooded with protests. Spon- 
taneously men gathered and declared that so mon- 
strous a bribery was not to be endured. The at- 
mosphere seemed stormy. On the night the vote 
was to be taken an immense crowd gathered about 
the city hall. It was observed that many men 
were armed and some bore rope^ and clubs. The 
constituents of one alderman marched down-town 
with a band at their head, sent into the chamber, 
dragged out their representative and told him In 
the plainest of words what would happen to him 
if he supported the ordinance. There were cries 
of ''Lynch them!" and "Shoot them!" Even 
sober-minded men advocated violence if the ordi- 
nance should go through. The gallery of the coun- 



62 LAWLESS WEALTH 

cil chamber was packed to its limits with an angry 
and threatening crowd. The evening newspapers 
issued hourly extras; the entire city was aroused. 
The aldermen looked at the sinister faces about 
them and heard the shouts of the crowd in the 
street and their courage failed them. Men that 
had bargained away their votes refused to stay 
bought and the ordinance was defeated. 

It had cost Mr. Yerkes, at Springfield and In 
Chicago, close upon $1,000,000, and for his ex- 
penditure he had nothing to show except some in- 
disputable evidences of public hatred. The lesson 
must have s-unk deep. He never repeated the at- 
tempt to have his franchises extended, and when 
he left Chicago the question of their future was 
still unsolved. Those that care to consider how 
surely we progress in such matters may be interested 
to know that the thing Mr. Yerkes desired and 
failed to get has now, in the main, been secured 
by Mr. Morgan and Mr. Ryan, and without any 
riots, disturbances, or indications of public wrath. 
iVll of which shows that there is more than one way 
to pull off a rotten franchise. 

One curious little incident never before published 
remains to be told of these matters. It may serve 
to afford an instructive light upon the modern 



LAWLESS WEALTH 63 

methods of corporation campaigning. One of the 
Chicago newspapers was particularly resolute in 
opposing the Yerkes franchise ordinance. A trusty 
agent of Mr. Yerkes sought the acquaintance of 
the editor of this newspaper and endeavored to 
induce him to publish a series of prepared articles 
on the franchise situation. As these articles pur- 
ported to contain furious denunciations of Mr. 
Yerkes and his ordinance, there appeared to be 
no reason why this newspaper should not use them. 
But a little inspection showed that the articles as- 
serted the existence in the ordinance of certain pro- 
visions that were not there. The intention was 
to secure in a hostile newspaper the publication of 
these false accusations so that Mr. Yerkes's news- 
papers could with a fine show of righteous wrath 
deny and denounce them, and thus discredit and 
discountenance the entire opposition. To discredit 
whomsoever attacks them is the chief weapon in 
the Vested Interest Armory. The editor exam- 
ined the articles and discovered the masked ex- 
plosive they contained. To lead the Yerkes agent 
on, he pretended a hesitation about the matter. 
Then the Yerkes agent intimated that the articles 
would be well paid for. In the end he offered 
$25,000. The offer was declined. 



64 LAWLESS WEALTH 

With Mr. Yerkes in the fatness of the goodly 
Chicago harvest were associated his old Philadel- 
phia friends, P. A. B. Widener and W. L. Elkins. 
The only thing better than to own the traction sys- 
tem of one city is to own the traction systems of 
many cities. So when Mr. Yerkes let the others 
into the good thing of Chicago, all fared together 
exceedingly well. Mr. Yerkes was faithful to his 
friends and, in certain ways, generous with the 
vast sums of money that rolled in upon him from 
the pockets of the masses. He had a picturesque 
way of dealing with aldermen, and then another 
picturesque way of talking about his dealings that 
rather endeared him to those that fancy cynic 
humor. One of his compressed comments on a cer- 
tain Chicago editor has passed into local his- 
tory. So have other remarks of his. He cannot 
be said to have originated the plan of running too 
few cars and overcrowding these, but he certainly 
gave that plan most extensive usage. Under this 
system the cars in Chicago customarily carried 
three times their normal capacity and the suffer- 
ing inflicted as a result was great and general. The 
people, whose patience is supposed to be eternal, 
complained at last of this method of fortune- 
building, and occasionally some one would arise 



LAWLESS WEALTH 65 

to remark that as the streets Mr. Yerkes was 
using for the purposes of his aggrandizement were 
really the people's, and as Mr. Yerkes was there 
by sufferance, it would be decent in him to provide 
tolerable accommodations to a public from which 
he was drawing so many millions. Some one 
actually suggested that Mr. Yerkes should run more 
cars. 

"Tush!" said Mr. Yerkes when these matters 
were called to his attention. ''It is the strap- 
hangers that pay the dividends." 

Dividends, however, were a small part of his 
profits, the most of which were made in Issuing and 
selling vast masses of fictitious securities and from 
construction companies that were supposed to do 
work for the traction company and really served as 
covers for the issue of more water. Two of these 
construction enterprises organized by Mr. Yerkes 
paid something like 500 per cent., which was cheer- 
fully added to the load of obligations on the trac- 
tion company. As Mr. Yerkes presently with- 
drew himself from the traction company, the extent 
of these obligations was a matter of no concern to 
him. I may add that the people of Chicago have 
found them of much more serious Import, for upon 
them fell the burden of furnishing the dividends 



66 LAWLESS WEALTH 

and interest on the securities thus created for Mr. 
Yerkes's profit. 

I suppose that a device so simple and so common 
as the Construction Company Fraud can hardly 
require much describing, and yet familiar as it is 
to all that inquire into these matters it may still 
be something of a novelty to the generality of men. 
The essence of it was in this case (to pick one as an 
example of many), that M'r. Yerkes formed the 
Columbine Construction Company, composed of 
himself and a few friends. Then acting in his ca- 
pacity as the controlling power in the Union Trac- 
tion Company he made a contract with himself 
in his capacity as the Columbine Construction 
Company by which the Columbine Construction 
Company undertook, at a very high price, cer- 
tain contracts for the Union Traction Company. 
The actual work could be and probably was 
sublet at a small price to some one else. If 
this arrangement seems in any way questionable 
I remind you that it is only part of a very general 
practice. At one time nearly all the great rail- 
road companies, particularly those in the West, 
operated exactly the same device, and no especial 
criticism was ever directed against it. The of- 
ficers or directors of the railroad company formed 



LAWLESS WEALTH 67 

themselves into a construction company or con- 
tracting company, and then gave to themselves the 
fattest contracts that the railroad had to make. 
We are supposed of late years to have undergone 
some moral spasm in our corporation affairs, in 
virtue of which we no longer do the things we ought 
not to do, but within a few months, turning over the 
pages of the annual report of oneof the greatest rail- 
roads in America, I discovered plain evidence that 
this particular Scheme for Getting It had by no 
means fallen into disuse. I do not know of any 
reason why it should. The money made by these 
methods is made from the stockholders at large in 
the first instance and eventually from the public. 
The stockholder probably never reads his annual 
report and of course the public does not know of 
the increased burden of rates that it pays how much 
is required for this or any other one item of gouge. 
Mr. Yerkes, indeed, and all others that have pur- 
sued these methods might have plausibly fallen 
back for their excuse upon a practically universal 
custom. I would not seem pessimistic or given to 
flaw-picking, but the known catalogue of the **hon- 
est grafts" that railroad directors enjoyed in days 
gone by would make a total compared wherewith 
Mr. Yerkes's winnings would look small. Take 



68 LAWLESS WEALTH 

for instance, the various coal companies that the 
Inter-State Commerce Commission proved to have 
been the private graft of the officers or directors 
of the Pennsylvania and reflect upon the methods 
by which these coal companies were favored at the 
railroad's expense. Take the presents of Pullman 
stock by which Mr. Pullman used to induce the 
directors of railroads to make long time contracts 
with him, favorable to his enterprise and costly to 
the railroads. Take the refrigerator car lines that 
were (and are) the personal property of directors 
and officers and gathered profits at the railroad's 
expense^ — and the public's. Take the practice of 
placing new town-sites on lands previously pur- 
chased by strangely well-informed directors. Take 
the monstrous sources of profits in contracts for 
coal and supplies. All of these things had been 
going on for years and were perfectly well known 
to every person that dipped below the surface. 
It seems to me in no way wonderful that Mr. 
Yerkes should have managed to take his bit 
with the rest. It happened that in his case the 
significance of these things to the public quickly I 
became apparent, while in the cases of the great j 
railroad companies the burden is distributed over ♦ 
so many years and so many communities that 



( 



LAWLESS WEALTH 69 

it long was unperceived. Yet of course there is 
no more doubt in one case than in the other as to 
whose shoulders bear the eventual load of these 
clever maneuvers, nor from whose pockets comes 
the money that builds these particular palaces. 

I have been at pains to point out that theimethods 
of stock-watering employed by Mr. Yerkes in 
Philadelphia and Chicago were not new, be- 
ing, in fact, mere imitations of Jay Gould's 
wizardry with the Erie. Yet it cannot be de- 
nied that the tremendous and conspicuous suc- 
cess (for Mr. Yerkes) of his operations greatly 
stimulated the practise elsewhere and was to 
a certain extent responsible for the floods of 
water that presently inundated the whole field 
of public utilities in the United States. The thing 
was so easily done (in the lax way we have of car- 
ing for our affairs) and its profits were so quick 
and sure that it became the general practise. At 
the present time if there is one considerable city in 
the United States that has a street-car or gas service 
operated on the basis of the actual investment 
therein it is one of which I have no knowledge. 
The introduction of electricity as a motive power 
gave an infallible excuse for "reorganizing" the 
1 existing lines, and so far as I have been able to 



70 LAWLESS WEALTH 

ascertain wherever there was a reorganization there 
was an issue of watered securities. It is a curious 
reflection that the patient people of the United 
States are paying in transportation charges and gas 
rates the annual interest on billions of dollars that 
never were Invested in anything, and in fact never 
had any existence except in a balance-sheet, but 
there is no escape from that conclusion. The total 
steam railroad capitalization of this country con- 
tains probably seven billions, possibly eight billions 
of water, and proportionately the street railroads 
are still more heavily flooded. The total amount 
of the annual interest charges on these fictitious 
sums has never been calculated, but it is obviously 
enormous, and oddly enough it is a payment from 
which the public cannot possibly derive the slightest 
return, just as surely as it is the payment that 
enables these fortunes to be acquired swiftly and 
without effort. 

Mr. Yerkes was undeniably a huge element for 
evil in Chicago, but some men liked him. They 
liked his candid, genial, and breezy conversation, 
and perhaps for that reason condoned in his career 
things not usually condoned nor discussed in a 
mixed company. But of Mr. Widener and Mr. 
Elkins no one ever knew much. They kept aloof 



LAWLESS WEALTH 71 

from the details and were known chiefly as recip- 
ients of the profits. Both were very quiet men. 
Mr. Elkins was retiring and eminently respectable. 
He, too, built a marble palace that rivaled Mr. 
WIdener's ; he, too, installed an art-gallery. About 
the personal traits of Charles T. Yerkes linger a 
thousand reminiscences ; about his companions none. 
So far as any mark upon their generation is con- 
cerned they might exactly as well have been of the 
unelect, of the unable and the ungifted that have 
$1,639 of average wealth and fight the daily battle 
in the little flat. 

These were the men that now turned their atten- 
tion to the street railroad situation in New York, 
where, at the suggestion of Mr. Whitney, they 
made their way through the basement door. 

It was an inviting place to enter, and no one may 
deny that fortune was grossly and blindly with 
them. New York had not yet awakened to traction 
potentialities. To the typical New Yorker a street- 
car had always meant a funny little thing that ran 
occasionally in a back street where there were no 
stages. He was just beginning to understand the 
extent of that error. And before he fully realized 
what was going on about him, the fortunate gen- 
tlemen of the syndicate had made themselves very 



72 LAWLESS WEALTH 

much at home on the premises, where they fared 
quite well, thank you. By the application of the 
Agreeable Formula, they succeeded in adding to 
their frugal store one railroad after another that 
had cost them nothing, until in a few years they 
were in a commanding position In the metropolis 
and exercising a very great and very subtle influence 
upon politics and legislation. I have yet to find any 
instance where these delicate financial operations 
have gone forward without affecting politics. Tam- 
many helped the syndicate and the syndicate helped 
Tammany, and the fruits of this close alliance were 
sometimes historic and nearly always a direct men- 
ace to the public welfare and the purity of govern- 
ment. 

As to the historic part, I may recall here an in- 
stance that has too long gone unnoted. In 1892 
Grover Cleveland was a candidate for the Demo- 
cratic nomination for President. Tammany was 
Cleveland's bitter, old-time and uncompromising 
foe. It fought him fiercely in the national con- 
vention, and when, despite its opposition, protests 
and prophecies, he won the nomination, Tammany 
went home swearing that it would not vote for him 
at the polls. But it did. Like a quiet little lamb, 
it marched up to the ballot box and cast its full 



LAWLESS WEALTH 73 

vote for Grover Cleveland, who received for Pres- 
ident practically as many votes as Gilroy, the Tam- 
many candidate, received for mayor. 

This was, at the time, a political wonder of 
wonders, and might well be, for it insured New 
York State for Cleveland. The reason for it, 
though obscured, was simple. Mr. Whitney was 
managing the Cleveland campaign. Mr. Whitney 
was also managing the Whitney-Elkins-Widener 
syndicate in control of the traction properties of 
New York City. He merely used the traction 
properties as a means to induce the leaders of Tam- 
many Hall to support Mr. Cleveland. That was 
all. It was enough. Alike the Tammany bosses 
and Mr. Whitney had too great interests in that 
alliance to admit of any division over a little matter 
like the Presidency. 

As to the other phase of the matter, the syndicate 
secured an interminable list of great privileges and 
immunities to which it had no right, but by which 
it profited immensely. Certain leaders of Tam- 
many Hall became largely possessed of syndicate 
stocks, and it is not yet forgotten that on a certain 
occasion a large block of them was found among 
the effects of a member of a certain leader's family. 

From the beginning of its marvelous career ia 



74 LAWLESS WEALTH 

New York, the syndicate was blessed with the sage 
counsel and able suggestions of Mr. Elihu Root, 
then confidential attorney to Mr. Whitney and Mr. 
Ryan, now Secretary of State of this nation. Under 
the guidance of this good man, the other members 
of the syndicate could doubtless feel at all times, 
and reasonably, that however unusual the course 
pursued and however it might be criticised by a 
harsh and unsympathetic world, it was at least not 
pointed toward the door of the penitentiary. Any- 
thing that Mr. Root advised must be right. Mr. 
Root was accustomed to arise in Cooper Union and 
other public places, and, with brow of thunder and 
voice of righteous wrath, flay all forms of wicked- 
ness, and particularly those practised by Tammany 
Hall. It must have been felt that ere such a man 
would countenance the least compromise with evil 
the heavens themselves would fall. Hence with 
bland confidence the syndicate gentlemen took Mr. 
Root's advice, harvested their profits, and justly 
esteemed their counselor. Mr. Whitney said of 
him that he was one of the most valuable men alive. 
**Other lawyers tell me what I can't do," said Mr. 
Whitney. *'What I like about Root is that he 
tells me what I can do and how to do it." 

Prosperity beamed upon the syndicate as one 



LAPFLESS WEALTH 75 

property after another fell into Its lap, without 
effort, without risk, without expenditure. At the 
end of Its first ten years In New York City, the 
World, exhaustively reviewing the history of these 
achievements, declared that there had been added 
to the syndicate's traction possessions in the city 
$19,000,000 of water, all of which represented 
clear profits to the happy gentlemen, quite aside 
from dividends, interest, deals, and all other sources 
of income. 

As to these other sources of Income and some 
cognate Incidents, these chronicles will have to say 
much hereafter, but for the present I may as well 
give two illustrations that, though small, may seem 
to Indicate to persons in the 2,000,000 and to per- 
sons in the 1,500,000 just why they are classed 
among the ungifted. 

I. Fulton Street is about a mile long, connects 
at one end with an East River ferry to Brooklyn, 
and at the other end abuts close upon a North 
River ferry to Jersey City. It is an important line 
of cross-town travel. In the late eighties the North 
& East River Railroad Company was organized 
to build and operate a street-car line in Fulton 
Street. One of the results of the Jake Sharp scan- 
dal had been a law, called the Cantor Act, by which 



76 LAWLESS WEALTH 

the public's franchises for public utilities were to be 
sold to the highest bidder instead of being given 
away by bribed aldermen. When the Fulton Street 
franchise was offered under this law, competitive 
bidding ran the price up to thirty-eight per cent, of 
the gross receipts to be paid to the city. 

The company was the first in New York to adopt 
the underground electric system. It failed, and 
the franchise passed into the hands of a contracting 
firm, Dady & O'Rourke, of Brooklyn, which com- 
pleted the road and operated it, but with horses, 
not electricity. It was unprofitable chiefly because 
of the heavy tax paid to the city. 

At this juncture, about 1890, the Whitney syn- 
dicate came in. It organized a new company called 
the Fulton Street Railroad, and issued $500,000 
of five per cent, bonds and $500,000 of stock, hav- 
ing incidentally neither property, business, nor 
rights of any kind upon v/hlch to base these securi- 
ties. The syndicate then went to Dady & O'Rourke 
and offered $150,000 of the new bonds in exchange 
for the franchise and property of the old company. 
This offer was accepted. Mr. Whitney then used 
his great influence with Tammany Hall and secured 
the reduction of the tax from thirty-eight per cent, 
to one-eighth of one per cent, of the gross receipts. 



LAWLESS WEALTH 77 

This done, the syndicate sold at par to the Metro- 
politan Street Railway Company (which was the 
name under which it was then operating the street 
railroads of New York) the $500,000 of stock and 
had the Metropolitan Street Railway Company 
guarantee the $500,000 of bonds. 

From this transaction the net profits (without 
the investment of a dollar) were $850,000 made 
in a few weeks. The time was to come when it 
would look paltry compared with other gains of 
these fortunate gentlemen. 

2. From bond issues made according tO' the 
Formula upon only one of the properties absorbed 
by the syndicate, the Houston, West Street & Pa- 
vonia Ferry Railroad, there was derived a net profit 
of $6,000,000. The ability, energy, and foresight 
involved in this transaction consisted in picking up 
the money. The service to society lay in loading 
an already heavily burdened enterprise with more 
obligations that the public must pay. Certainly, 
in these instances, the gifts of the gifted hardly 
shine forth as anything phenomenal ; the brain-cells 
Involved may be thought to be very much like cer- 
tain other brain-cells of which we have a not too in- 
spiring knowledge. 



CHAPTER V 

THE STORY OF THE GREAT MILWAUKEE DEAL 

**If Thomas F. Ryan," said Mr. Whitney re- 
flectively one day in 1889, **lives out the ordinary 
span of life, he will be the richest man in the 
world." 

Mr. Ryan was then a comparatively obscure 
operator, whose achievements in New York had 
been small and who, except for one thing, was 
chiefly remembered as the treasurer of Mr. Whit- 
ney's unsuccessful New York Cable Railroad. 

But Mr. Whitney had other knowledge of Mr. 
Ryan. As soon as Jake Sharp had won the Broad- 
way prize, Mr. Whitney dropped the cable project 
and wasted upon it no more of his good time, so 
that it lapsed into a thing for financial faddists and 
for the charges of the *'black horse cavalry" at Al- 
bany. But when he saw his way back into the 
street railroad business and founded his syndicate 
and regained the Broadway franchise, he placed his 

78 



LAWLESS WEALTH 79 

greatest dependence upon Mr. Ryan, who became 
in all his deals his chief lieutenant and executive. 

One reason why Mr. Whitney thought so well 
of Mr. Ryan was that Mr. Ryan had just pulled 
off a thing that showed he knew the Agreeable 
Formula and could work It as well as anybody else 
could. 

On November 30, 1888, with Fahnstock & Co., 
of New York, Mr. Ryan bought the Milwaukee 
City Railway Company, the largest of the four 
street railroad concerns then In Milwaukee. It owned 
thirty-six miles of track, 700 horses, and 100 cars. 
The price nominated In the deed of conveyance was 
$1 and other good and valuable considerations; but 
the price on which the purchase was actually figured 
was $1,293,750. Mr. Ryan and Fahnstock & Co., 
applying the Formula by which Something is made 
from Nothing, property Is acquired without cost, 
and fortunes and golden palaces are built In a night. 
Immediately bonded their purchase for $1,000,000, 
and the next day, December i, were filed the arti- 
cles of Incorporation of a new company with 
$1,500,000 capital, 4,000 shares of preferred 
stock, and 11,000 shares of common. This gave 
a total capitalization of $2,500,000, against a nom- 
inal purchase price of $1,293,750. In other 



8o LAWLESS WEALTH 

words, It enabled the purchasers to secure the rail- 
road without expending one cent for it and also 
provided a handsome balance in cash, or its equiv- 
alent, all furnished by the indulgent public — a re- 
sult for which the Formula Is unrivaled. The 
Central Trust of New York took the bonds. There 
were some claims against the old company, amount- 
ing to a few thousand dollars, that were assumed, 
and some other claims that were not assumed. For 
these certain lawyers had bills to be settled, but 
Mr. Ryan and his associates from New York came 
into Milwaukee so quietly and did their business 
so unostentatiously that they were gone before the 
sheriff had a chance to serve his writs. 

Eighteen months later, In June, 1890, through 
negotiations conducted by Henry C. Payne, after- 
ward Postmaster-General of the United States, Mr. 
Ryan and Fahnstock & Co. sold the entire stock 
of the Milwaukee City Railway Company to the 
Villard Syndicate for about $1,750,000, a sum that, 
In view of the bond and stock issues, represented 
almost clear profits. Later the Villard Syndicate 
went into the hands of a receiver. In the receiver- 
ship proceedings the fact was disclosed that soon 
after the sale of the Milwaukee City Railway had 
been effected, the Villard Syndicate had offered a 



LAWLESS WEALTH 8i 

very large sum to be released from its bargain and 
to be allowed to return the property — from which 
the actual condition of the goods delivered may be 
surmised. 

Then where the gentlemen concerned in this 
typical instance got their share of It is clear 
enough. In the time that Mr. Ryan and his asso- 
ciates held the Milwaukee City Railway they did 
nothing to improve it. The community gained 
from their ownership no shred of advantage. They 
made transportation no w^hit better, cheaper, nor 
easier. They performed no service to society. 
They simply reached out their hands with the For- 
mula for Fortune-making and drew them back with 
$1,500,000, which the people of Milwaukee must 
supply and continue to supply many times over. 
So you can see in exactly how much of utility or of 
public service lie the foundations of at least one of 
the palaces. 

This was Mr. Ryan's first great victory in finance * 
and it naturally gave him much deserved reputation. 
Mr. Whitney heard of the achievement and doubt- 
less thought well of it, for it confirmed his previous 
high estimate of Mr. Ryan's capacity. 

Nevertheless, for a few years Mr. Ryan's share 
in the actual steering of the syndicate was small, 



82 LAWLESS WEALTH 

and the laying of the course was always in other 
hands. But his time was to come, and no man 
alive was better able to wait, a fact that recalls an- 
other story, also with a moral. 



CHAPTER VI 

THE STORY OF THE HOCKING VALLEY LOOT 

This Is a little story of the Agreeable Formula 
as the veritable Philosopher's Stone of wealth, and 
how easily it turns to gold whatever it touches. It 
is especially commended to the attention of the flat- 
dwellers and others among the little able, because 
it contains many useful and informing lessons : one 
of them concerning the view that the courts have 
taken of some of these performances of the gifted, 
and another being the exact amount of ability re- 
quired to make these gorgeous fortunes. 

I suppose few of us whose memories go back so 
far will need to be told that twenty-five years ago 
the railroad system of the United States, which is 
now controlled by seven men, consisted of hundreds 
of separate properties, some of them exceedingly 
small and quite independent. Three of these little 
lines, the Columbus & Hocking Valley, the Colum- 
bus & Toledo, and the Ohio & West Virginia, ex- 

83 



84 LAWLESS WEALTH 

isted in 1881 in the coal region of Ohio. Henry 
B. Payne, Chauncey H. Andrews, Jeptha H. 
Wade, and three other Ohio capitalists united with 
one Stevenson Burke in a scheme to combine and 
possess these properties — and others. Henry B. 
Payne was one of the controlling powers in the 
Standard Oil Company, from which he had drawn 
an enormous fortune, and was the father-in-law of 
William C. Whitney. He has also a kind of fame 
in Ohio and elsewhere, through the charge brought 
against him that he purchased his seat in the United 
States Senate, and for other reasons not necessary 
to discuss here. The other members of the pool 
were rich, but not so rich as Mr. Payne. 

Included in the property of the three little rail- 
roads were some coal lands, and coal lands are 
always good to have. The gentlemen of the pool 
earnestly desired to have the coal lands as well as 
the railroads. Presently they found themselves in 
possession of the coal lands, the railroads, and other 
good and valuable things, and without expending 
a cent therefor, or performing any labor, or making 
any effort, or returning any equivalent, and yet 
without risking the penitentiary. How did this 
marvel come about? 

In a very simple but effective way, as follows : 



LAWLESS WEALTH 85 

First, the seven eminent gentlemen forming the 
pool executed twenty-four separate notes, aggre- 
gating $6,000,000. These notes Mr. Burke took 
to New York, where they were discounted by the 
banking firm of Winslow, Lanier & Co., acting 
with Drexel, Morgan & Co. and the Central Trust 
Company. With the funds thus secured the pool 
bought the three little railroads and the coal lands 
appertaining thereto. The railroads they consol- 
idated into the Columbus, Hocking Valley & To^ 
ledo, a name long and odorously familiar in rail- 
road history, and the coal lands they reserved for 
other purposes. 

Having thus secured control of the property, the 
gentlemen issued upon it $14,500,000 of five per 
cent, bonds, whereof it was announced that $6,500,- 
000 were required to take up the outstanding obli- 
gations of the three little roads, and the remaining 
$8,000,000 were to be used for needed improve- 
ments, such as laying double track and increasing 
the equipment. At least this was the plain decla- 
ration of the resolutions of the directors authorizing 
the bonds and of the mortgage on which the bonds 
were based. There could hardly be framed in 
words a stronger covenant. Of the $14,500,000 
bonds thus issued, $6,500,000 were duly used to 



86 LAWLESS WEALTH 

pay off the existing obligations of the three little 
roads, but for a good and sufficient reason there 
was no double-tracking, there were no other im- 
provements. 

The gentlemen in the pool had utilized the coal 
lands that went with their purchase to organize anr 
other corporation — the Continental Coal Company. 
They now exchanged the stock of the Continental 
Coal Company for the $8,000,000 that still re- 
mained of the newly issued Columbus, Hocking 
Valley & Toledo bonds. With $6,000,000 of the 
bonds thus secured, they paid off the twenty-four 
original notes that had been discounted by Wins- 
low, Lanier & Co., Drexel, Morgan & Co., and the 
Central Trust Company. There was left $2,000,- 
000 of the bonds, which they divided among them- 
selves. 

Their balance-sheet then showed an investment 
of nothing, capital nothing, expenditure nothing; 
net profits, a railroad system and $2,000,000 — 
which might be termed fairly remunerative work 
and shows how liberally we reward the able. Net 
profits of $2,000,000 and a railroad are probably 
more than any six or even seven flat-dwellers made 
that year, but of course there is to be considered the 



LAWLESS WEALTH 87 

pool's services to society, presently to be disclosed 
in full. 

The next chapter of the story introduces two 
additional characters. So evanescent is the glory 
of politics that I suppose not many men can now of 
a sudden find in their memories the face and fame 
of James J. Belden, of Syracuse; yet of old time he 
was a great figure in New York State and national 
politics and in that peculiar and unillumined border- 
land where politics and business fare hand in hand. 
"Jim" Belden, he was called; a smooth, suave, re- 
sourceful gentleman of a varied, sometimes pic- 
turesque, and usually successful career. 

Mr. Ryan knew him well and he knew Mr. 
Ryan ; they had reason to know each other, having 
some interests in common and very likely some sym- 
pathetic views. In 1889, it occurred to one of 
them, which one I do not know, that all the good 
things were not gone out of Columbus, Hocking 
Valley & Toledo. Wall Street knew pretty well 
the operations of the Burke Syndicate and generally 
believed them to be questionable. Not because 
they differed in their essence from one hundred 
other similar transactions by which great fortunes 
had been built, but because in this instance the thing 
had been done too boldly and with a brutal candor 



88 LAWLESS WEALTH 

repulsive to good taste. Wall Street did not inter- 
fere with the achievement, because such is not its 
way, but it held the game to have gone too far and 
to be subject to investigation by the courts. Mr. 
Ryan and Mr. Belden must have become inoculated 
with. this view. Mr, Belden went out into the 
Street and bought $50,000 of the Columbus, Hock- 
ing Valley & Toledo bonds. Then he suddenly 
brought suit against Stevenson Burke, Winslow, 
Lanier & Co., Drexel, Morgan & Co., and the 
Central Trust Company, to compel the return to 
the railroad's treasury of the $8,000,000 in bonds 
that had gone to pay off the syndicate's twenty-four 
notes and had otherwise been used for the benefit 
of the pool. 

In advance of the bringing of this suit, Mr. 
Ryan had gathered all his available means, and 
very quietly, as was his wont, he had laid in the 
stock of the railroad. It looked like a good thing, 
because there was no doubt that the original transac- 
tion was essentially dishonest, and if the courts 
should so decide, the $8,000,000 would have to 
be returned to the treasury of the Columbus, Hock- 
ing Valley & Toledo (where it was badly needed) , 
and the stock of that railroad would certainly go 
soaring. At the time the stock was inert and the 



LAWLESS WEALTH 89 

price very low, for the load of bonds placed on the 
property by the Payne-Burke pool had almost 
broken the road's back, and all it could squeeze, 
gouge, and trick from the patient public (which 
in every case pays for these amusements) could 
hardly provide the fixed charges. So with cheer- 
ful heart, no doubt, Mr. Ryan bought heavily. So 
did Mr. Belden — quietly, always quietly. 

Winslow, Lanier & Co. bitterly fought the suit. 
On each side was a great array of counsel, and 
without surprise we find our old friend Elihu Root, 
now Secretary of State, fighting for Belden — and 
Ryan. After profound argument. Judge Ingra- 
ham, who heard the suit, rendered a decision that, 
while not regarded as determining definitely all the 
points at issue, ruled essentially against Belden — 
and Ryan. The ground on which Judge Ingraham 
based his decision was chiefly this, that the money 
the plaintiff sought to recover had never been 
in the possession of the railroad company, but had 
been appropriated by certain members of the pool 
to their own uses. Hence it was not covered by 
the mortgage and hence it was no concern of Bel- 
den's, whose claim was based upon the mortgage 
and upon nothing else. 

On appeal from this finding, the old General 



90 LAWLESS WEALTH 

Term practically sustained Judge Ingraham, though 
it severely denounced the actions of Burke and his 
associates. It excluded from any liability the bank- 
ing firms from which Belden and Ryan expected 
to recover and restricted their action to Stevenson 
Burke, who probably had no such sum of money. 
It is proper to add that Henry B. Payne and two 
other members of the pool were exempted from 
the suit, it having been shown that they received 
no part of the plunder. 

The case then went to the Court of Appeals. 

But now a very strange thing happened and one 
for which there has never been any adequate ex- 
planation. To this day it remains among the his- 
toric mysteries of high finance. Just before the 
Court of Appeals handed down its decision In the 
case, there came secretly from Albany a definite 
rumor that the findings below would be reversed 
and that the majority opinion would be for Belden 
— and Ryan. I may say that It Is not usual for 
advance information to leak out concerning a de- 
cision by the Court of Appeals ; not usual and not 
proper. As a rule, the decisions of this, the most 
solemn and august court in the State, are an in- 
violable secret until they are officially promulgated. 
But in this case Mr. Ryan seems to have believed 



LAWLESS WEALTH 91 

that he had news of the impending decision, news 
that he, most careful and deliberate of men, felt 
that he could not doubt; and thus secure In his 
ability, energy, and foresight, he bought more and 
more of the stock, standing to make enormous 
profits on the advance that was to be. 

But when the decision came out, lo, it was against 
him ! That Burke and his companions had looted 
the Columbus, Hocking Valley & Toledo of 
$8,000,000 of bonds the decision clearly admitted; 
but it held that since Belden had bought his bonds 
with a full knowledge of all the facts, and subse- 
quent thereto, and had bought them for the sole 
purpose of bringing the suit, he was not entitled to 
recover. Somebody else might be so entitled, but 
not Belden. 

Something about the decision always seemed baf- 
fling and unsatisfactory. It was not signed by all 
the judges and a story was circulated and eventually 
printed that the judgment handed down was not the ' 
judgment of the majority, that the advance report 
that Mr. Ryan received of the decision was at the 
time well-founded, and that the opinion rendered 
was really the opinion of a dissenting minority of 
the court. 

All this helped Mr. Ryan nothing. His ability. 



92 LAWLESS WEALTH 

energy, and foresight had gone astray : there was 
no rise of Columbus, Hocking Valley & Toledo 
stock, no magnificent coup, no millions seized in a 
day. On the contrary, he saw the ship of his for- 
tunes driving toward a lee shore, and it was only 
by a changing wind that he could claw off. 

As to the plundered Columbus, Hocking Valley 
& Toledo, according to all precedent and all the 
logic of the situation, that, being a poor staggering 
concern overloaded with loot bonds and such things, 
should have gone to the junk heap. But in the 
course of time there came a business revival through 
the country resulting in an increased demand for 
coal, and the wretched thing managed by sheer good 
fortune to sustain Itself. Years afterward Mr. 
Ryan hooked to It some more railroads similarly 
broken-backed, blanketed these (if you will believe 
me) with more of the handy mortgage, and in the 
end sold the whole curio collection at a profit — a 
consummation characteristic of the other side of 
fortune-making, which consists of mere luck. 

But as to the light In which the courts view these 
performances, which was the moral we started with, 
I cite these condensations from the scalding opinion 
of the General Term, reviewing the methods of 



LAV/ LESS WEALTH 93 

Burke and his associates. The court found that 
these methods were chiefly as follows : 

1. Purchasing stocks of other railroads and get- 
ting bankers to advance money on them by which 
the control of the roads was secured without further 
expenditure. In other words, the Formula. 

2. Buying contiguous coal and other lands at 
less than their actual value and selling them to the 
company at a large advance. 

3. Issuing the $14,500,000 of bonds for a speci- 
fied purpose and then using $8,000,000 of the 
bonds for another purpose, namely, to redeem the 
notes given to Winslow, Lanier & Co., for the 
benefit of Burke and his associates. 

4. Causing the company to mortgage all its prop- 
erty to support these bonds. 

5. Concealing the use really intended to be made 
of these bonds and misrepresenting it in the cove- 
nant declarations of the mortgage. 

All these actions the court held to be utterly 
wrong. How they could be wrong in this instance 
and right in the hundreds of other instances in 
which they have been used (to the decoration of 
upper Fifth Avenue), will puzzle the ungifted 
mind to discern. But anyway the gentlemen had 
got It and continued to possess It. 



CHAPTER VII 

THE STORY OF THE TWO VIRGINIANS 

A THIRD instructive and moral tale might be 
used to illustrate the romance of modern business 
as well as the easy road to great wealth as pursued 
by the devotees of the Formula. 

Here are two Virginians, two men of the good 
old Scotch-Irish strain, and they meet in a long, 
resolute, fiercely fought duel for a prize of prop- 
erty, one fighting with old-fashioned ideas of busi- 
ness integrity, the other with all the resources of 
the New Finance. What do you think? That 
ought to be worth while, ought it not? for it will 
show something about our new ways as compared 
with the old, and will reveal still further to the 
flat-dweller the paths that lead from his $1,639 
perch to the high places of prosperity. 

The financial agent of the Confederacy in the 
Civil War was a Richmond banking house of which 
an active member was Mr. John L. Williams, 

94 



LAWLESS WEALTH 95 

greatly esteemed through the South for his stain- 
less reputation and his good works. He had six 
sons, whom he trained to his own stern code of 
integrity and personal honor, and of whom those 
that did not choose professional careers entered suc- 
cessively into partnership with their father. The 
eldest of these, John Skelton Williams, developed 
unusual capacity in revitalizing broken-down prop- 
erties and in endowing them with both honesty and 
success. He did this for a piece of railroad flot- 
sam that his firm had almost by accident become 
interested in. He put the thing together and made 
it go, and using it for a nucleus, began to add other 
bits of distressed railroad. He had energy and 
enthusiasm and profound faith in the future of the 
South. Thus he prospered with the South, and so 
did the banking firm of John L. Williams & Sons, 
Richmond. 

This was in the early nineties. In the eastern 

I part of the Southern country were then many in- 
dependent short railroad lines, mostly indifferent 
and unprofitable. John Skelton Williams pulled 
together three or four of these, organizing there- 
from the Georgia & Alabama Railroad with 460 
miles of track, of which he was elected president. 

I He added^ in the next three or four years, other 



9 6 LAWLESS WEAL TH 

short lines, eighteen in all, built some hundreds of 
miles of connecting track, and made from it all the 
Seaboard Air Line Railroad, 2,600 miles long, of 
which in 1899, when he was thirty-three years old, 
he was made president, and thus became a powerful 
factor in the railroad world. 

Mr. J. Pierpont Morgan was then paying espe- 
cial heed to Southern railroads, and Mr. Williams 
greatly annoyed him by getting possession of lines 
that Mr. Morgan wanted for himself. At that 
time and for long afterward, Mr. Morgan and 
Mr. Ryan commonly worked together harmon- 
iously, and Mr. Ryan found that by assisting Mr. 
Morgan's plans he was generally furthering his 
own. In this instance Mr. Ryan, acting for him- 
self and for Mr. Morgan, undertook to get control 
of the Seaboard Air Line, and thereby block the 
Williams game. To that end he secured stock in 
one of the constituent roads and brought a suit 
(shown in the sequel to be baseless) the ulti- 
mate purpose of which was to prevent the con- 
solidation and to oust Mr. Williams from his posi- 
tion. Mr. Williams went out with joy to the con- 
flict ; the legal battle that followed lasted for years, 
was fought with great bitterness and determination, 
and ended in the victory of Mr. Williams. 



LAWLESS WEALTH 97 

While this was going on, a curious incident oc- 
curring in New York caused Mr. Williams (and 
others) a certain degree of perplexity and might 
have had serious results upon his affairs. The firm 
of John L. Williams & Sons, Richmond, was closely 
allied with the firm of J. W. Middendorf & Co., 
Baltimore, the two having joint interest in enor- 
mous development investments in the South, of 
which the Seaboard Air Line was a part. These 
enterprises were heavily supported and in part 
financed by the Produce Exchange Trust Com- 
pany of New York, of which John Skelton Wil- 
liams was a stockholder and director. One Sunday 
night in December, 1899, Mr. Williams received, 
at his home in Richmond, a telegram from the sec- 
retary of the company requesting his presence at 
a directors' meeting in New York the next morning 
at nine o'clock. It was then after the time at 
which the last train of the night should have left for 
New York. Mr. Williams discovered that the 
train was three hours late, caught it, and reached 
New York at half-past nine the next morning. As 
he was hurrying from the ferry to the meeting, the 
newsboys were calling extras. He bought one and 
discovered that the news was the collapse of the 
Produce Exchange Trust Company. 



98 LAWLESS WEALTH 

This failure was and still remains a mystery of 
Wall Street. To all appearances the Institution 
was beset by no storms that it might not easily have 
weathered. The Williams firm and allies would 
have been glad to secure practically unlimited help 
for it, if they had been informed of what was 
toward. Ostensibly and for public consumption, 
the cause of the trouble was mismanagement by the 
president of the company, one Beall, and its involu- 
tion in the tangled affairs of Thomas F. Mclntyre, 
one of the directors. Mclntyre had plunged on 
the futile Flour Trust and lost. The Produce Ex- 
change Trust Company had lent much money to 
the Flour Trust; but examination of the company's 
resources seemed to show that these loans were 
wholly insufficient to account for the failure. A 
few days later there appeared in the New York 
Evening Post a carefully written and, so far as one 
could tell, a well-considered letter from Norfolk, 
Virginia, in which the charge was made and main- 
tained that the Produce Exchange Trust Company 
had been dragged down by the Morgan interests 
in order to embarrass the Williams-Middendorf 
syndicate, which controlled the Seaboard Air Line. 
I have not been able to find that this charge was 
ever refuted. 



LAWLESS WEALTH 99 

Mr. Edwin Gould, who had not before and has 
not since made the least figure in financial affairs, 
was the person that innocently pushed over the con- 
cern. He had just been chosen its vice-president, 
and was led to believe that the management (by 
Beall and Mclntyre) had been very bad. When 
he had declined to go on unless these men resigned, 
and they had refused to resign, the collapse fol- 
lowed. An interesting discovery afterward made 
by Mr. Williams was that just before the suspen- 
sion all the papers in the Trust Company's vaults 
that referred to the Seaboard Air Line, or to the 
Williams-Middendorf syndicate, had been removed 
to the office of some one in the Morgan interests. 
They were subsequently returned, but no explana- 
tion was ever afforded for this peculiar transaction. 

For a few weeks the Trust Company was in sus- 
pension ; then it resumed business. It still sails the 
financial seas, though under another name. 

But to return to the two Virginians. Three) 
years of fighting, fighting for business, fighting In 
the courts, and fighting off the flank attack made 
through the Trust Company, had ended in apparent 
victory for the Williams interests and apparent de- 
feat for Mr. Ryan. But to bring the Seaboard 
Air Line to the full measure of its efficiency, ex- 



100 LAWLESS WEALTH 

tension and connections were needed, for of course 
the Morgan lines continued upon it a relentless 
warfare. The Louisville & Nashville was then a 
big, independent railroad, owned by conservative 
men who had no ambitions toward railroad expan- 
sion. It would make an excellent addition to the 
Seaboard Air Line, and Mr. Williams and the 
Middendorf firm quietly undertook to buy it. Be^. 
fore long they discovered that Mr. John W. Gates 
was also accumulating the stock and had secured 
enough, with the holdings of the Williams interest, 
to assure control. At this juncture Mr. Morgan 
discovered what was in the wind. The Williams 
party had negotiated with the Gates interest and 
had reached what seemed to be a definite agreement 
by which the holdings were to be combined and the 
Louisville & Nashville was to become a part of the 
Seaboard Air Line system. Mr. Morgan, who was 
then in London, was greatly annoyed and worried 
by the situation. He sat up all of one night send- 
ing cable messages and receiving replies, that he 
might prevent the delivery of the holdings neces^ 
sary to complete the Williams-Gates deal. 

At two o'clock the next morning Charles M. 
Schwab, then president of the Steel Trust, in which 
Mr. Morgan was the controlling factor, came to 



LAWLESS WEALTH loi 

the Waldorf-Astoria Hotel where Mr. Gates lived, 
awakened him, and told him that there had been 
that night a meeting of some of the most important 
banks in New York; that they regarded the situa- 
tion as serious ; that they knew Mr. Gates had pur- 
chased great quantities of Louisville & Nashville; 
that he was disturbing the market; and that they 
desired to know and thought they ought to know 
where he was depositing the stock as collateral. 
Mr. Gates gave Mr. Schwab the desired informa;- 
tion, and Mr. Schwab went away. The next day 
the Morgan interests had certain conferences with 
the Gates interests, and the Gates interests notified 
the Williams party that they could not continue the 
negotiations concerning Louisville & Nashville. 
The next thing the Street knew, Louisville & Nash- 
ville had been sold to the Atlantic Coast Line, a 
Morgan road. 

Thus the Seaboard Air Line was debarred from 
the connections it needed, and Mr. Williams was 
frustrated in the plans he had formed to develop 
the property to its fullest efficiency. It was so situ- 
ated that if it could be supplied with outlets it could 
be made a great through trunk line of the first im- 
portance. Mr. Williams, undismayed by the rever- 
sal brought upon him by the secret maneuvers of 



i 



102 LAWLESS WEALTH. 

his powerful enemies, set about new ways of se- 
curing for his road the connections it needed. There 
was a railroad that began nowhere and ended no- 
where, but so lay that by building about fifty miles 
of track at each end, it could be made a through 
line from Atlanta to Birmingham, Alabama, and 
thus furnish the Seaboard Air Line with a south- 
western outlet. Mr. Williams bought this road 
and began to build. At this time it is probably 
better to omit the details of what happened next, 
but there appears too much reason to think that a 
plan, by no means unfamiliar in high finance, was 
used, by which the work was made unnecessarily 
expensive and Mr. Williams was deceived about it. 
Anyway, the cost of the extensions far exceeded all 
the estimates (just as had previously happened in 
the case of the Third Avenue Railroad in New 
York), and the Seaboard Air Line was soon in, a 
position where it must borrow money. 

This was in the summer of 1903, when the 
money market was abnormally tight. Financial 
stringency temporarily settled upon the South. The 
firm of John L. Williams & Sons had many lines 
out. It perceived clearly that it faced a time of 
trouble. Therefore, having made arrangements 
to protect its interests and its creditors, it announced 



LAWLESS WEALTH 103 

in October, 1903, that it had suspended payments 
and asked for seven months in which to straighten 
Its affairs. The creditors retained their faith in 
the firm, no runs ensued upon any of the firm's 
banks, and at the end of the seven months it fully 
resumed payments and business; but for the time 
being the financial prospects of Southern develop- 
ment looked dubious. 

Things were in this situation when, one day, 
Mr. S. Davies Warfield, President of a Trust Com- 
pany in Baltimore, of which Thomas F. Ryan had 
been a director, came to Mr. Williams in New 
York and said : 

*'I have seen Ryan." 

**Seen Ryan, eh?" said Mr. Williams, who was 
not much interested. 

"Yes, and I think Ryan is the man to help you 
out of your troubles. He sympathizes with you, 
and if it should be entirely agreeable to you to take 
the matter up with him, I think you can get from 
him whatever money the Seaboard may require." 

Mr. Williams is not a sentimental person, but 
here was a fellow- Virginian offering the hand of 
Southern fraternity, here was a former antagonist 
coming (with a chivalry that seemed characteristic 
of the South) to the relief of a distressed com- 



104 LAWLESS WEALTK 

patriot: he admits that he was somewhat moved 
by a generosity so great and a fraternal feeling so 
warmly manifested. Gladly he consented to a 
meeting. It took place at Mr. Ryan's house. Mr. 
Ryan greeted Mr. Williams like a long-lost brother 
and spoke with strong feeling of the unfortunate 
position in which Mr. Williams found himself. 

*'You have done such great things/' he said, 
'^and shown so much energy and ability that it 
would be most deplorable if you were not able to 
go on with the Seaboard Air Line, and reap the 
just reward of your labors." 

Then he suggested that they should talk over the 
matter with Blair & Co., which is a name under 
which Mr. Ryan does brokerage business. So Mr. 
Williams with Mr. Ryan saw Blair & Co., and 
Blair & Co. arranged for a loan to- the Seaboard 
Air Line of $2,500,000, on ample security and the 
condition that certain changes be made in the Vot- 
ing Trust and the Board of Directors by which the 
Seaboard Air Line was managed. There was a 
distinct and explicit understanding, Mr. Williams 
says, that he should not be disturbed in any way, 
that he should be free as before to carry out his 
policy, that the management of the road should re- 
main as it was ; but having advanced such a large 



LAWLESS WEALTH 105 

sum, Mr. Ryan urged that it was only fair he 
should be represented. 

Mr. Williams agreed to this and communicated 
with his friends, some of whom readily resigned 
from the board and from the Voting Trust, and 
other men were named in their places. 

As soon as this had been effected, Mr. Williams 
observed a great change in the attitude of the new 
directors and quickly discovered that instead of 
supporting him they were bent upon thwarting him. 
At almost the end of December, 1903, they notified 
him that, with January i close at hand, there was 
no money wherewith to pay the coupons, that the 
earnings of the road were insufficient to meet the 
fixed charges, and that it would be necessary to 
effect a new loan of $5,000,000, of whichl$2,500,- 
000 was to be used to repay the loan of $2,500,- 
000 from Blair & Co., a transaction only a few 
weeks old. They had therefore decided to issue 
$5,000,000 worth of three-year 5 per cent, bonds, 
coupling them with a bonus of $12,500,000 of 
stock ($4,500,000 of it preferred). The bonds 
were to be offered to stockholders pro rata on their 
holdings. The so-called bonus stock, you under- 
stand, was a gift, or premium to induce subscrip- 
tions to the bonds. 



io6 LAWLESS WEALTH 

To this proposal Mr. Williams objected vehem- 
ently, on the ground that it was wholly unnecessary. 
He was convinced that the actual situation war- 
ranted no such increase in the road's indebtedness 
and that if left alone the property would right it- 
self. Subsequently, he discovered that the earn- 
ings showed a surplus of $400,000 instead of a 
deficiency. 

When the directors saw that Mr. Williams was 
determined not to consent, they played their trump 
card. 

'*Very well," they said. **It is either this loan 
of $5,000,000 or a receivership. If you will not 
consent to the loan, we shall apply for a receiver." 

Mr. Williams knew that in the condition in 
which his firm stood, a receivership and the conse- 
quent depression of Seaboard Air Line stock would 
be a grave disaster. He was therefore forced at 
the pistol's point to acquiesce in the loan, but he 
stipulated that the bonus stock should not be thrown 
upon the market, which was agreed to and under- 
stood on all sides. The loan was floated through 
Blair & Co., who were to receive five per cent, com- 
mission on all the bonds sold by whatever means, 
and who were a party to the agreement that the 
bonus stock should not be thrown upon the market. 



LAWLESS WEALTH 107 

Now, although the stock exchange lists were 
showing a strong recovery from the panic of the 
previous summer and prices were rising, Seaboard, 
through some mysterious pressure, was being forced 
steadily down, in the face of increased earnings. 

Mr. Williams very soon discovered by indubita- 
ble means that the agreement about the bonus stock 
was not being kept. Bonus stock was coming out ; 
he saw it with his eyes and handled it with his 
hands. He went to Mr. Ryan, whom he knew to 
be the principal in all these transactions, and com- 
plained. Mr. Ryan emphatically denied that any 
bonus stock had been sold. Mr. Williams said he 
knew better. Mr. Ryan said Mr. Williams was 
mistaken. 

**See your Mr. Dennis," said Williams, *'and 
question him about it." 

*'See him yourself," said Mr. Ryan, and left the 
room. 

Subsequently Mr. Williams confronted Mr. 
Dennis, and Mr. Dennis failed to deny that the 
bonus stock had been turned loose. 

He could not very well deny it, for the thing was 
palpable. The bonus stock continued to come out, 
accompanied by the most depressing statements 
from the new directors. 



io8 LAWLESS WEALTH 

These statements and the flood of stock filled 
the air with forebodings of impending trouble. 
Under this pressure Seaboard Air Line stock was 
steadily hammered In the market until both com- 
mon and preferred had fallen to one-half the price 
quoted when the new directors were chosen. Mr. 
Williams had long lines of the stock. In the em- 
barrassed condition of his firm he found It Impos- 
sible longer to withstand the pressure, and after 
a brave but useless fight he was forced to sur- 
render.* His stock was sold for $3,500,000 less 
than It was quoted at the year before Mr. Ryan 
brought Blair & Co. Into the property. Where- 

*Mr. Williams may be thought to belong to the order of 
the Scotch-Irish that do not know when they are beaten. Ac- 
cording to custom and the etiquette of Wall Street he should 
now have retired from the field and kept still. Instead he 
shocked and disgusted all conservative financial gentlemen by 
going on with his fight, even with broken weapons if he had 
none other. He used to attend the annual meetings of the 
Seaboard Air Line stockholders and render them memorable 
with frank, pointed and vitriolic remarks about the actual con- 
dition of the road. As he knew, one may say, every spike 
and rail in it, he was in a position to speak understandingly. 
Meantime he carried on his warfare elsewhere, and on Janu- 
ary 2, 1908, he won a great and notable victory, as on that 
day at Richmond, Judge Pritchard in the United States Cir- 
cuit Court appointed as receivers of the Seaboard Air Line 
Lancaster Williams (a brother of John Skelton Williams) 
and S. D. Warfield of Baltimore. 



LAWLESS WEALTH 109 

upon Mr. Ryan took possession of the Seaboard 
Air line. 

One little incident I ought not to omit. In the 
midst of the stress and strain Mr. Ryan continued 
to express solicitude for Mr. Williams's welfare 
and a desire to help and advise him. Mr. Williams, 
fighting a big battle single-handed, was willing to 
be advised. 

"Mr. Williams," said Mr. Ryan one day, **I 
have been thinking much about your affairs, and I 
see the way out for you.'* 

Mr. Williams felt glad. 

**The thing for you to do, I am convinced," said 
Mr. Ryan — and he paused impressively while Mr. 
Williams gathered new hope — *'the thing for you 
is to go into bankruptcy." 

But we started to find out where the gentlemen 
got It. These bonds, $5,000,000 of them, issued 
to save the Seaboard Air Line from imaginary dis^ 
aster, bore interest at five per cent. With the 
bonus stock they were offered to the stockholders 
— the Blair-Ryan syndicate to take whatever the 
stockholders did not take and to receive, as a com- 
mission for underwriting, $250,000 in cash. Mem- 
I bers of the syndicate are said to have tried to 
frighten and dissuade the stockholders from taking 



no LAWLESS WEALTH^ 

the bonds. Anyw^ay, the stockholders took only 
$2,800,000 worth, leaving $2,200,000 for the 
syndicate. Deducting Its commission for under- 
writing and the interest that the syndicate re- 
ceived, amounting to $450,000 In all, the cash that 
the syndicate actually invested was $1,750,000. 

On September i, 1904, the Blair- Ryan syndi- 
cate's account In the transaction looked like this : 

$2,200,000 five per cent, bonds worth 96 $2,112,000 

35,200 shares of common stock (bonus) at 17.. 598,400 
19,800 shares of preferred stock (bonus) at ZZ-- 653,400 

Total $3,363,800 

It had paid out 1,750,000 

Profit $1,613,800 

Or more than ninety per cent, profit on the 
transaction. This is, of course, exclusive of the 
profits made from hammering Seaboard stock by 
means of the bonus issues. 

From which the inference seems clear that one 
of the ways to get It is to maneuver your man Into 
a hole and squeeze him, and another Is to manipu- 
late your generosity so as to get returns from it. 

And besides the profits on these operations, Mr. 
Ryan had the Seaboard Air Line. 

Why should any man be poor? 



CHAPTER VIII 

THE OFFICE BOY IN HIGH FINANCE 

"In this world," says the old philosophy, "man 
may not get something for nothing, but renders a 
return for all he may acquire." 

But where? Not in the fertile regions of high 
finance, certainly. There to get valuable proper- 
ties and to pay nothing for them is the essence of 
the game. 

True, you cannot always play that game with- 
out disagreeable half-hours, but sitting tight and 
abiding in your faith in the American tolerance, you 
shall still win at the end. As you may observe in 
this story, told here to illustrate other phases of 
the ability that distinguishes the successful man in 
these pleasant regions. 

In New York we have banks that are called 
banks, and banks that are called trust com.panies, 
the difference lying in a more liberal attitude of the 



1 1 2 LAWLESS WEAL TH, 

law toward the banks that are called trust com- 
panies. Many trust companies have been organ- 
ized in the last twenty years, and some of them have 
had historic careers. One, called the State Trust 
Company, was founded in 1890 by Mr. Willis S. 
Paine, as a kind of collateral enterprise of the 
American Surety Company, of which Mr. Paine 
was a director. The business of the American 
Surety Company being chiefly to bond employees 
and to indemnify employers, the premiums from 
its policies constantly produced for it a considerable 
stream of ready money. Now to have ready money 
instead of credits to handle is a great thing in the 
Wall Street game. One that has control of the 
investing of much ready money can do- well and 
lawfully although the money be not his. The gen- 
tlemen back of the American Surety Company 
thought it was a great deal better to invest the 
premium money than to have it in a bank subject 
to somebody else's investing. But the law rigidly 
restricts the investing of insurance funds by insur- 
ance companies. Hence the utility of a trust com- 
pany that is really a branch of the insurance com- 
pany but operates under another name^ — an advan- 
tage thoroughly appreciated by the big life insur- 
ance companies in the palmy days before 1905. 



LAWLESS WEALTH 113 

The capital stock of the State Trust Company 
was $1,000,000, subscribed at 150, so It began 
business with a surplus of $500,000 In addition to 
its capital. 

In order to secure permanently the control of the 
trust company by the insurance company, and to 
perfect the alias under which the Insurance com- 
pany was also to do business as a bank, more than 
one-quarter of the trust company's stock was held 
in the treasury of the surety company, and with 
more than another quarter there was created that 
beautiful and efficient device, a Voting Trust. That 
Is, the subscribers to this part of the stock surren- 
dered their voting rights to trustees that were bound 
to vote as the surety company might direct. Mr. 
Paine was president of the State Trust Company 
and a majority of the trustees were connected also 
with the American Surety Company. 

For some years the State Trust Company sailed 
an even and uneventful course, being reputed a 
good conservative institution and performing agree- 
ably its functions as the banking alias of an in- 
surance company. In 1898 it had a surplus and 
undivided profits of $1,250,000, and deposits of 
$10,000,000, having paid six per cent, dividends 
and kept on the windward side of the law. But in 



1 14 LAWLESS WEALTH 

that year the Whitney-Ryan syndicate, under the 
inspiration of Mr. R. A. C. Smith (a gifted gentle- 
man with a career in connection with the business 
side of the Spanish- American war) , secured posses- 
sion of the American Surety Company and there- 
with, of course, control of the State Trust Com- 
pany. 

It is well to control a trust company that is mak- 
ing good dividends, but better to own it, particu- 
larly if you have many schemes and design to use 
the trust company as a financial adjunct of your 
scheming. The syndicate had the one-quarter 
block of stock. This it used as a nucleus. It then 
went to the other stockholders and persuaded or 
coerced them into parting with one-half of their 
holdings at 200, which was about the current price, 
promising that after the programmed reorganiza- 
tion the price would be raised to 400, so that the 
half each stockholder retained would then be 
worth as much as his entire holdings had been 
worth before. Next it effected on the Real Estate 
Exchange some ostensible sales of the stock (made 
by one syndicate member to another) at 400, which 
established a market rate at that figure. Then it 
borrowed money on the stock as collateral, at or 
near this artificial price, and with the money thus 



LAWLESS WEALTH 115 

obtained It paid for the stock it had secured from 
the other stockholders — a small but pleasing illus- 
tration of the game before referred to, and tending 
to show that no man need go without any property 
if he will take the right way to get it. 

Among the original stockholders of the State 
Trust Company and directors of the American 
Surety Company was one Abram Kling. He had 
190 shares in the trust company and 400 in the 
surety company. He said that one day Mr. Ryan 
called him on the telephone and cordially invited 
him to sell one-half of his holdings in the trust 
company. He declined. Subsequently he gave 
the following version of the rest of the conversa- 
tion : 

Mr. Ryan — ^Well, in that case, Mr. Kling, if you 
refuse to sell, you understand, we shall have to re- 
move you from the board of the surety company. 

Mr. Kling — You go to the devil. 

Whereupon, he said, he hung up the receiver. 

Immediately afterward he was dropped from the 
directorate. 

Mr. Kling clung (to speak In the manner of a 
conjugation) to his stock, and observed the sailing 
of the reorganized company. He may have had 
other motives than pure philanthropy; I do not 



1 1 6 LAWLESS WEAL TH 

know. It may be admitted that in these days pure 
philanthropy seldom journeys in New York below 
Fourteenth Street. And he may not have been 
the only person that for unpublished reasons re^ 
garded with suspicion the new owners. Anyway, 
neither Mr. Ryan nor Wall Street was yet through 
with Mr. Kling, whose name was destined in the 
nt:!^t few years to become reasonably well known 
to both. 

Meantime, the syndicate took possession of the 
ship and put in charge thereof officers dependable 
for syndicate purposes — Mr. Walter S. Johnston 
as president, and a serviceable secretary. On the 
new board of directors appeared the names of some 
gentlemen already well known to us — Elihu Root 
(now Secretary of State) , Thomas F. Ryan, H. H. 
Vreeland (president of the Metropolitan Street 
Railway Company), William C. Whitney, P. A. 
B. Widener, and R. A. C. Smith. Of these, Mr. 
Root, Mr. Vreeland, Mr. Ryan and Mr. Smith 
were also directors in the American Surety Com- 
pany. 

The office of the State Trust Company was No. 
ICG Broadway. So was the office of the American 
Surety Company. So also was the office of Mr. 
Thomas F. Ryan. So also, pleasantly enough, were 



LAWLESS WEALTH 117 

the offices of many stock companies, real, imaginary, 
plausible, potential, projected, prospective, and de- 
coy, that the syndicate found useful to it in its busi- 
ness. The more companies, the easier becomes the 
application of the Formula for Wealth and the 
issuing of securities for other people to pay. Some 
of these companies were schemes of an exceedingly 
light and airy nature, having. In fact, no other sub- 
stance than some sheets of paper. Captain Gulli- 
ver would have found much subject for remark 
among them, for they strongly recalled the Island 
of Laputa. They gave to No. 100 Broadway a 
certain distinction not, perhaps, wholly desirable 
for serious enterprises whose object is ordinary 
business and profits made in the slow old way that 
involves the rendering of something for something. 
The place was known as the *Tromoters' Para- 
dise." 

Under its new management the State Trust Com- 
pany seemed to fare excellently well. Its deposits 
increased; so did its loans. It gathered much 
money of other people for the disposition of the 
syndicate. It was known as the financial agent 
for many of the syndicate's multifarious enterprises. 
It was a bank of deposit for the syndicate's Metro- 
politan Street Railway Company. To the outside 



1 1 8 LAWLESS WEAL TH 

world It looked like a portly and well-conducted 
institution ; inside its doors, as we know now, busi- 
ness went swimmingly and to the satisfaction of 
the gentlemen whose ability, energy and foresight 
had created much of the property out of nothing. 
In November, 1899, the State bank examiner looked 
upon the company's affairs and said that they were 
good, and the company's statement, January i, 
1900, showed that its deposits had increased nearly 
$5,000,000, for on that date it had $14,829,1 16.55 
of other people's money to deal with and total re- 
sources of $17,122,411.57. Its profits in the pre- 
ceding year had been $830,920.50, and it had paid 
six per cent, dividends. All was well, therefore, 
at No. 100 Broadway. 

Suddenly, in the midst of this fair day and cloud- 
less sky, a bolt fell. On January 11, 1900, Mr. 
Kling presented to the Governor of New York a 
long communication in which he made specific and 
very grave charges against the management of the 
State Trust Company, and petitioned for the ap- 
pointment of a commissioner to investigate the com- 
pany's affairs. He declared that the directors, in 
violation of the express mandates of the law, had 
repeatedly lent to themselves the company's assets; 
that they had lent money to themselves under other 



LAWLESS WEALTH 119 

persons' names upon questionable or worthless se- 
curity and upon none at all ; that they had lent to 
individual borrowers sums in excess of the legal 
limits, and that their general course had been law- 
less and such as to imperil the safety of the insti- 
tution and the stability of business. These charges, 
if true, were enough to send the whole board of 
directors to the penitentiary for long terms. 

Mr. Kling not only delivered his petition to Gov- 
ernor Roosevelt, but what was still worse, the next 
day he made it public. The governor seemed to 
be much stirred by the revelations it contained. He 
declared at once that he must know the facts and 
all of them, and to that end he appointed as a 
special commissioner to investigate the company, 
former Adjutant-General Avery D. Andrews, of 
New York City. General Andrews had been Gov- 
ernor Roosevelt's colleague on the Police Board 
under the so-called reform administration of Mayor 
Strong, and in the incessant squabbles of that board 
had taken some part. In more recent times he be^ 
came one of the directing spirits of the Asphalt 
Trust, rather unpleasantly prominent in the Ven- 
ezuelan troubles. His instructions in the State 
Trust affair were to go to the bottom of it, ''no 
matter whom it might affect." 



I20 LAWLESS WEALTH 

Now the State Trust affair properly belonged 
to the official care of Mr. F. P. Kilburn, who was 
then superintendent of the State Banking Depart- 
ment. For some reason not officially disclosed, the 
governor totally ignored Mr. Kilburn and en- 
trusted all his house-cleaning to General Andrews. 
Whereupon Mr. Kilburn started upon an investi- 
gation of his own. There were thus two Inquiries 
proceeding at the same time, while the New York 
newspapers, taking the scent, conducted a third. 

General Andrews finished first. His appoint- 
ment was telegraphed to him on the I2th, and he 
began work on the 13th. His Investigation lasted 
somewhat less than five hours. He then ceased 
from his labors and returned two documents. One 
was a report on what he had found, and the other 
was a personal letter asking to be relieved from 
further research In the matter. 

This seemed to press and public a startling turn 
In the affair, and great curiosity was aroused as to 
its occasion. People generally felt that here was 
something exceedingly strange and even mysterious, 
and they desired to know more about it. The 
public curiosity was not gratified — at that time. 
General Andrews was relieved according to his re- 
quest; no one was appointed in his place; his report 



LAWLESS WEALTH 121 

was locked up in Albany; and Superintendent Kil- 
burn's report coming in shortly afterward, that, 
too, was consigned to oblivion. In spite of all de- 
mands, the administration refused to make either 
public, or to give any idea of the contents of either, 
or to take any action on either. The only informa- 
tion disclosed was that both reports had found the 
company solvent. 

Meantime, the third investigation, that of the 
newspapers, directed toward burrowing into the 
specific allegations of Mr. Kling, seemed to estab- 
lish in the State Trust Company a condition rotten 
almost beyond precedent and lawless enough to de- 
mand stem retribution. Mr. Kling had affirmed 
many astounding things about the management, giv- 
ing picturesque details and illustrations, and of 
these at least the following seemed to be undeniably 
true: 

I. The company had made a loan of $2,000,000 
to one Daniel H. Shea, and this loan appeared to 
be either unsecured or supported by very question- 
able collateral. On inquiry, Daniel H. Shea was 
found to be an office boy in the employment of Mr. 
Thomas F. Ryan and In receipt of a salary of $15 
a week. 

2. This loan was $900,000 in excess of the limit 



122 LAWLESS WEALTH 

fixed by the law, and was further illegal because it 
was really made (In violation of the express prohi- 
bition of the law) to directors of the company. 
That it was so made was explicitly acknowledged 
by three of the directors, who, upon the publication 
of these facts and upon some signs of rising popular 
wrath, returned to the company the shares they had 
received of the loan. 

3. There was a loan of $435,470.48 on insuffi- 
cient and doubtful collateral to Louis F. Payn, who 
was the State Superintendent of Insurance. The 
State Trust Company was owned by the Whitney- 
Ryan syndicate; so also was the American Surety 
Company, which, as an insurance concern, was di- 
rectly under the official supervision of Mr. Payn 
and capable of receiving benefits at his hands, a fact 
that made this loan, which was improper in other 
ways, look and smell exceedingly ill. 

4. There was a loan of $412,000 to William 
F. Sheehan, also on very doubtful security. Mr. 
Sheehan was, and still is, a person of great influence 
in the Democratic Party of the State of New York. 
He was also of counsel (though not often appear- 
ing in court) for the Metropolitan Street Railway 
Company and for Mr. Thomas F. Ryan. 



LAWLESS WEALTH 123 

There were reasons to believe that this was far 
from the extent of the questionable transactions. 

Some of the journals now renewed their urgent 
demands that the State administration should m^ake 
public the Andrews and Kilburn reports, or at least 
one of them. This the State administration still 
refused to do, although urged on every ground of 
duty and obligation, and although In the beginning 
there had been a promise that the public should 
know everything of interest concerning the com- 
pany, and General Andrews had been ordered to 
go to the bottom of the inquiry, *^no matter whom 
it might affect." Mr. Kilburn and General An- 
drews as steadily refused to give an inkling of the 
nature of their discoveries. A very strange but 
most potent spell of silence and inaction seemed to 
have mastered all the authorities. In New York 
City the district attorney and In Albany the attor- 
ney-general declined to act. A committee of the 
State Assembly was induced to demand a copy of 
the Kilburn report, but by the time It was produced 
the committee had voted 6 to 5 to return It with the 
seals unbroken. A demand for a legislative com- 
mittee of investigation was similarly Ineffectual. 
And against this blank wall official inquiry seemed 
to have come to an end. 



124 LAWLESS WEALTH 

Yet for some days the developments gave to the 
story daily a worse aspect. That loan tO' Louis F. 
Payn, for instance, seemed a thing that absolutely 
demanded more light upon It. Men recalled that 
the State Trust Company was owned by the owners 
of the Metropolitan Street Railway Company, and 
that certain advantages secured by the Metropoli- 
tan Street Railway Company at Albany the pre- 
vious winter made it inappropriate for that com- 
pany to deal much or openly with politicians. In 
those days the Third Avenue Railroad was still an 
independent concern and was engaged in fighting 
the Metropolitan. Both companies secured what 
they were pleased to call rights in Amsterdam Ave- 
nue and a furious battle began between them for 
the possession of that part of the people's high- 
ways. Mr. Payn was a political leader of much 
power In the State; that is, he was supposed to 
"swing" several votes In the legislature, where the 
deciding contest was fought. For reasons never 
divulged, the Third Avenue Company counted 
securely upon the support of Mr. Payn, and with 
the votes that he "swung" It expected to have a 
majority, narrow but sufficient. But when the final 
ballot was taken, the votes that Mr. Payn was said 
to "swing" appeared, to the amazement of the 



LAWLESS WEALTH 125 

spectators, in the Metropolitan column, and the 
Third Avenue Company was defeated. 

Soon afterward, a trust company owned by the 
Metropolitan Street Railway Company lent to Mr. 
Payn a very large sum of money on very inadequate 
security. To the average man this fact would seem 
to constitute a situation that no public officer sworn 
to enforce the law could ignore. Particularly when 
the money thus lent was not the money of the Met- 
ropolitan Street Railway Company, but of deposi- 
tors that had innocently confided it to a trust com- 
pany in ignorance of the fact that this trust com- 
pany was an alias for a surety company, and the 
surety company was an alias for the traction com- 
pany, and the traction company was an alias for 
something else. And again, particularly when 
such loans, made in utter defiance of the law, threat- 
ened the whole structure of business confidence. 

In the criminal courts of New York City that 
month there were tried and sent to prison hundreds 
of men whose offenses against the law and society 
were trivial compared with these. Therefore, it 
appeared, the machinery of justice was in regular 
working order. 

Yet in New York against these offenders would 
no man move. 



CHAPTER IX 

ADDITIONAL LIGHT ON THE JUDICIOUS MIXTURE 

OF POLITICS AND BUSINESS THAT IS ESSENTIAL 

TO THE BEST PLAYING OF THE GAME 

Bad as all this was, worse remained behind. On 
the 1 2th of March the New York World managed 
to secure, in some surreptitious way, a copy of the 
Kilburn report (so carefully suppressed at Albany) , 
and published It, practically in full. The whole 
country gasped at the official confirmation it con- 
tained of the worst charges made by Kling or hinted 
by the newspapers. There seemed no longer a 
chance to doubt that the official investigation had 
been muzzled because of ^*the prominence of the 
persons involved," who now stood forth in a white 
light, painfully conspicuous. They were : 

Elihu Root, then Secretary of War, now Secre- 
tary of State, a director in the State Trust Com- 
pany, long the personal and confidential adviser 

of Mr. Whitney and Mr. Ryan. 

126 



LAWLESS WEALTH 127 

John W. Griggs, then Attorney-General of the 
United States. 

Thomas F. Ryan. 

William C. Whitney. 

R A. B. Widener. 

R. A. C. Smith. 

Anthony N. Brady. 

It appeared that of the $14,829,1 16.55 of other 
people's money confidingly deposited with this trust 
company, $5,133,270.48 had been swept into im- 
proper or utterly illegal loans for the benefit of the 
gentlemen whose ability, energy, and foresight had 
created something from nothing. 

Among these loans were the following: 

Daniel H. Shea $2,000,000.00 

Moore & Schley 1,000,000.00 

Louis F. Payn 435,470.48 

Anthony N. Brady 285,000.00 

William F. Sheehan 435,000.00 

Metropolitan Traction Company 500,000.00 

It appeared further that the loan to the office 
boy Shea had been negotiated by Elihu Root, di- 
rector of the company, member of the executive 
committee, and its personal and confidential adviser, 
and that it had been kept off the directors' minute 
books. 



128 LAWLESS WEALTH 

''Beyond all question," said the report, '*this loan 
was illegal, because excessive, and because, in part, 
it was made directly to directors of the company." 

Illegal ! Well, is it possible to conceive of any- 
thing more illegal? For how reads the law upon 
this subject? 

"No loan shall be made by any such corporation 
[trust company] directly or indirectly to any di- 
rector or officer thereof." — General Banking Act, 
section 156. Passed in 1892. 

And further : 

*'Every director of a moneyed corporation who 
wilfully does any act as such director which is ex- 
pressly forbidden by law, or wilfully omits to per- 
form any duty imposed upon him as such director 
by law, is guilty of a misdemeanor, if no other 
punishment is prescribed therefor by law." — Penal 
Code, section 603. 

It appeared further from the report that the col- 
laterals securing the Sheehan loan were *'not cur- 
rently quoted," and that Mr. Kilburn could not 
estimate their value, which was, of course, a polite 
way of saying that they were rubbish. It appeared 
further that this loan was in reality made in the 
interest of — what, for a guess? Why, our old 
friend the United Gas Improvement Company of 



LAWLESS WEALTH 129 

Philadelphia, the corporation that afterward be^ 
came so popular that the people gathered to hang 
some of its advocates. The United Gas Improve- 
ment Company got that loan and was to repay it, 
presumably out of the money gathered in such ques- 
tionable ways in Philadelphia. But the United 
Gas Improvement Company was the syndicate, and 
the syndicate (and Mr. Root) composed the direct- 
orate of the State Trust Company. So that when 
we have traveled the circle of ability, energy, and 
foresight we have nothing but the directors (in vic^- 

* lation of the law) lending their depositors' money 
to themselves. 

It appeared further that the loan of $285,000 to 
Anthony N. Brady was without security of any 
kind, and that Mr. Brady, who was and is the 
autocrat of that popular and favorite institution, 
the Brooklyn Rapid Transit, was the close associate 
of the syndicate in many of its operations. 

And it appeared further that the loan of $500,- 
000 to the Metropolitan Traction Company was 

'without security of any kind, and that the Metro- 
politan Traction Company was the syndicate. 

All this was only the beginning of the story. 
Examination of the collateral reported as securing 
some of the loans showed remarkable things. Thus, 



130 LAWLESS WEALTH 

in the case of the loan of $435,470.48 to Louis F. 
Payn (who was perfectly well known to be of small 
means), the collateral had at the most a nominal 
value of only $350,000, so that $85,000 of the 
loan was not even nominally secured. Most of the 
collateral that was deposited consisted of the so- 
called securities of corporations like the New York 
& North Shore Railroad, which, astonishing as it 
may seem, were the doubtful and obscure proper- 
ties of the syndicate itself. 

Hence, it was to be assumed that none of the 
securities deposited had ever been owned by Mr. 
Payn, and that the whole transaction was merely 
a blind to cover something else, some other opera- 
tion, very likely with other people's money. Nor 
is even this all. Besides these alleged securities, 
which were to the loan exactly what a Raines Law 
sandwich is to a Sunday drink, there was a check for 
$100,000 made by the Metropolitan Street Rail- 
way Company to the order of Louis F. Payn, and 
marked * 'construction account." But Mr. Payn, 
who is merely a professional politician, never had 
anything to do with any "construction" work for 
the Metropolitan and never could have had. More- 
over, it is perfectly well known that the **construc- 
tion account" is among railroad companies a com- 



LAWLESS WEALTH 131 

mon and favorite disguise for rebates, graft, boodle 
and other illegal payments. No one could doubt, 
therefore, that here was something more than sus- 
picious. 

Nor IS even this all. The check to Payn was 
an advance or an accommodation, and In the law 
of the State (the poor old forgotten and neglected 
law!) corporations are forbidden to make such ad- 
vances or accommodations. So that here was law- 
breaking. 

Again, the State Trust Company held $500,000 
worth of the stock of the Metropolitan Traction 
Company, and, by the law of the State, trust com- 
panies are forbidden to hold, in excess of ten per 
cent, of their capital, the stock of other corpora- 
tions. The capital stock of the State Trust Com- 
pany was $1,000,000; ten per cent, out of that 
would have been $100,000. So that here was law- 
breaking. 

And again, the loan to ojfKce-boy Shea was in 
excess of the legal limits. So that here was law- 
breaking. 

And again, the last statement of the company 
declared that the loans on personal notes were only 
$10,000, whereas the loan to Anthony Brady and 






132 LAWLESS WEALTH 

a loan of $70,000 to Miner C. Keith were on per- 
sonal notes. So that here was lawbreaking. 

But, Indeed, there seemed to be no end to the 
lawlessness that had rioted at No. 100 Broadway. 
Nobody believed that the so-called ''Moore & 
Schley loan" had been made for Moore & Schley, 
and examination of the other ''loan cards" revealed 
the names of many friends of the syndicate (some 
of them penniless) that under various devices apr 
peared to have been favored with large amounts 
on syndicate or other airy collaterals. All of these 
transactions had exactly the look of the Shea loan; 
that is to say, so far as one could judge, the obscure 
borrowers that apparently had been entrusted with 
great wealth were mere dummies or lay figures to 
cover further illegal advances to the directors of the 
company. We need not here go into these matters, 
but I offer another list of loans and the securities 
therefor that will to the discerning tell Its own 
story : 



Borrower 


Amount 


Collateral 


John W. Griggs 


$14,000 


Chicago Union Traction 


John W. Griggs 


8,000 


Electric Storage 



(Mr. Griggs was then Attorney-General of the United States. 
Union Traction is the final company by which Mr. Yerkes 
looted the street-railroad service of Chicago. Electric Storage 
was one of the syndicate's stocks.) 



Sharp & Bryan $ioo,cx)o -] 
Henry P. Booth 60,000 -| 



LAWLESS WEALTH 133 

N. D. Daboll $35,000 1,000 American Tobacco 

(Mr. Daboll was secretary of a syndicate company. Ameri- 
can Tobacco is owned largely by the Ryan syndicate.) 

Miner C. Keith $70,000 Unsecured notes 

(This loan has never been explained. Mr. Keith was not 
generally known in Wall Street.) 

Securities of various syndicate 
decoy companies 

Bonds of the American Mail 
Steamship Company 

(The American Mail Steamship Company was a syndicate 
concern and Mr. Booth was one of its directors.) 

Alden M. Young $76,000 Various securities 

(Mr. Young was employed in one of the syndicate offices at 
No. 100 Broadway.) 

W. A. Marburg $81,400 Chicago Union Traction 

(Mr. Marburg was a director in the American Mail Steam- 
ship Company.) 

H. G. Runkle $309,260 Chicago Union Traction and 

other stock 

(Mr. Runkle was secretary of the American Mail Steam- 
ship Company.) 

R. C. Peabody $80,000 N. Y. Gas and Electric and 

other securities 

(R. C. Peabody was a brother of G. F. Peabody, who was 
a director of the State Trust Company.) 

David B. Sickles $12,250 American Surety and other 

securities 

Many of the securities supporting the loans made 
by the company were securities of companies floated 
by the syndicate or promoted by individual mem- 



134 LAWLESS WEALTH 

bers thereof, and some of these startled the con- 
servative element in Wall Street when it was found 
that money had actually been risked upon such stuff. 
Thus, one of the companies had no property, no 
rights, no business, and no existence except upon 
paper, and others were recognized as exceedingly 
dubious enterprises. A list of securities on which 
loans had been made by the State Trust was sub- 
mitted to the loaning officers of four reputable trust 
companies of New York. Each declared instantly 
that his company would not under any circumstances 
advance a dollar upon such collateral. 

One of the syndicate companies, Electric Vehicle, 
seems at the time to have had too little attention, 
for It played a momentous but silent part in the 
drama and had a history both interesting and illu- 
minative. 

Several years before the State Trust Company 
moved into the center of the stage, Mr. Isaac L. 
Rice, of New York City, became the owner of many 
valuable patents on storage batteries for electricity. 
To use them, he formed and was president of the 
Storage Battery Company, which had close business 
relations with the original Electric Vehicle Com- 
pany. Between them a contract was made, stipu- 
lating that the Electric Vehicle Company should 



LAWLESS WEALTH 135 

have the right to use the patents owned by Mr. 
Rice, and that the Storage Battery Company should 
furnish mechanical equipments to the Electric Vehi- 
cle Company at a discount from the market prices. 

Among the ventures of the syndicate, which had 
now ramified in a hundred directions, it had secured 
possession of an electric automobile concern at 
Hartford, and It found, therefore, that it needed 
storage batteries. This drew its attention to Mr. 
Rice's company, and in a short time Mr. Rice found 
that the syndicate was undermining his control. He 
resisted, but vainly, and seeing what was at hand, 
retired to the Electric Vehicle Company, of which 
he became president, while the syndicate took pos- 
session of the Storage Battery concern. 

Its first purpose, of course, was to get cheap 
storage batteries for its Hartford factory, but as 
soon as it was in possession It discovered the con- 
tract by which the Storage Battery Company, with 
its heirs and assigns, was bound to sell storage bat- 
teries at a cheaper price to the Electric Vehicle Com- 
pany than to anybody else. This would, of course, 
defeat the very object the syndicate most desired, so 
the syndicate declared that It would not recognize 
nor be bound by the contract. Mr. Rice Insisted 
(as was his Indubitable right) that the contract was 



136 LAWLESS WEALTH. 

perfectly legal and proper and must be enforced. 
The syndicate gentlemen responded that they would 
not observe it anyway. A bitter row ensued. Mr. 
Rice purposed to enforce the contract in the courts, 
which would probably have been not to the fancy 
of the syndicate. Anyway, Mr. James R. Keene 
was called in to try to effect a settlement without 
litigation. He met the gentlemen of the syndi- 
cate, Mr. Elihu Root, their confidential adviser, 
and Mr. Rice. Mr. Keene considered the finan- 
cial condition of Electric Vehicle and finally pro- 
posed a compromise that would secure Electric 
Vehicle financial assistance and give the syndicate 
in effect some of the advantages it demanded. The 
capital of Electric Vehicle was $10,000,000, of 
which $4,000,000 in preferred stock was in the 
company's treasury. The syndicate agreed that 
its Storage Battery Company should take over the 
$4,000,000 of preferred Electric Vehicle stock then 
in the Electric Vehicle treasury, at a price that was 
less than its market value. This stock was to be 
held by the Storage Battery Company. Then Elec- 
tric Vehicle was to issue $2,000,000 of additional 
common stock, which the syndicate was to purchase 
at par, thus effecting to all practical intents an 
amalgamation of the two companies. 



LAWLESS WEALTH 137 

Accordingly, on May 13, 1899, the Electric Ve- 
hicle Company issued $2,000,000 of additional 
common stock, which the syndicate took. It also 
possessed itself of the $4,000,000 of preferred 
stock that had been in the Electric Vehicle treasury. 
Instead of placing this $4,000,000 of preferred 
stock in the Storage Battery treasury, the syndicate 
placed there $2,000,000 of the preferred stock and 
the $2,000,000 of new common stock that had just 
been issued, and thus had the remaining $2,000,000 
of preferred stock to manipulate. It was to carry 
out this deal that the $2,000,000 loan was made 
through office-boy Shea, the money thus secured 
from the State Trust Company's resources enabling 
the syndicate to make a $6,000,000 transaction and 
secure possession of the Electric Vehicle Company. 
As an interesting corollary of this narrative, it 
may be mentioned that for his serviced in bringing 
about the treaty of peace, M'r. Keene was prom- 
ised 2,500 shares of Electric Vehicle stock. This 
promise was never kept. Subsequently, without 
informing Mr. Keene, the syndicate made a beauti- 
ful move by which the $2,000,000 in cash that had 
j been paid into the treasur}' of the Electric Vehicle 
j for the $4,000,000 of preferred stock, was depos- 
ited in the State Trust Company, thus bringing the 



138 LAWLESS WEALTH 

money directly back to the place from which it 
started. This working of the game, coupled with 
the refusal to pay him for his labors, undoubtedly 
nettled Mr. Keene. It was afterward asserted 
that he instigated the attack of Kling and secured 
the information that Kling laid before the gover- 
nor. 

There was still much more to the story of Daniel 
H. Shea, office boy. Mr. Kilburn in his report 
quoted the full text of the obligation on which an 
office boy secured $2,000,000. It read thus: 

To THE State Trust Company ; 

Gentlemen: Please take up and pay for 20,000 
shares of the preferred stock of the Electric Ve- 
hicle Company which will be delivered to you by 
that company at par, and hold same for my account. 
I will reimburse you on demand for the amount 
paid, with four per cent, interest from the date of 
payment and all expenses, including revenue 
stamps. Daniel H. Shea. 

We hereby guarantee • the performance of the 
above promise. 

P. A. B. WiDENER, 

Thomas F. Ryan^ 



LAWLESS WEALTH 139 

On this extraordinary document Mr. Kilburn 
made the following significant comment: 

*Tresident Johnston testified before me that the 
guarantee was made at the time the loan was made, 
but by this I think he must have meant to be under- 
stood that the guarantee was made at the time the 
obligation was given by Mr, Shea and the transac- 
tion transferred from advances to loans." 

Which was the only reference in the report to 
the highly interesting fact of the transfer from **ad- 
vances" to ^'loans'' and the only hint at another 
state of facts still more important. For the New 
York World charged (and was never contradicted 
therein) that the advance to Shea was really made 
at an earlier date, that it had then no endorsement 
of any kind, and that there had already been a de- 
fault in the interest, which had been added to the 
principal. 

Nothing but devious twistings and turnings 
whichever way one looked ! 

Mr. Kilburn, reviewing some of these things and 
obviously trying to put the best face upon them, 
says in his report: 

*'If the individuals merit severer treatment the 
courts are open, and public officials may be called 
upon to take cognizance of illegal acts." 



140 LAWLESS WEALTH 

But no public officials ever took cognizance of 
these illegal acts, though repeatedly called upon to 
do so. Here were a dozen instances of open, 
defiant, and wanton violation of the laws that 
are made to preserve financial honesty and to 
protect innocent depositors, laws fundamental 
to the essential security of business; and yet 
against the men guilty of these offenses not a 
public officer lifted a finger nor said a word. 
More than that, it was well understood from 
the first that no one would be punished for these 
crimes, and that so far as these offenses were con- 
cerned the law was a thing of shreds and patches. 

And yet from the first there was a strange terror 
upon all the eminent gentlemen concerned. Mr. 
Kling's petition was made public on January 12; 
the newspapers began to get hold of the basic facts 
in the case about the 14th. On the 15th Mr. Wliit- 
ney paid back the $300,000 that had been his share 
of the Shea loan, and on the next day Mr. Widener 
returned his portion. It appeared that on the day 
of the publishing of Kling's petition a frantic effort 
had been made to reduce the Payn loan, and even 
after General Andrews had begun his investigation 
$100,000 had been hastily paid in to reduce the 
illegal loan to the Metropolitan Company. One 



LAWLESS WEALTH 141 

member of the syndicate, who had enjoyed much 
political experience and influence, sent a New York 
politician to Mr. Kilburn with an urgent plea that 
the superintendent should do as little in the matter 
as possible. Mr. Kilburn violently expelled the 
politician from his office. Yet the gentlemen could 
hardly have been in fear of the penitentiary they 
had earned; they must have known they were in 
little danger of that. Mr. Elihu Root, now Secrcr 
tary of State, was daily in communication by tele- 
phone and otherwise with Albany, and the syndi- 
cate knew Mr. Root well and had a reasonable 
faith in his ability and success in such delicate af- 
fairs. It was something else that shook them all 
with visible alarms, drove them to restitution, and 
finally to the most extraordinary steps to cover their 
tracks. 

Some of the men involved in the mess tried to 
bluff a way through the situation by averring 
loudly that the attack on the State Trust Company 
had been made to rig the stock market or was ma- 
licious and unjust. But reporters to whom these 
statements were made tell me the men that made 
them talked like men with unstrung nerves and 
that chill concern looked out of their eyes the while. 
In a way almost pitiable, they seemed to have lost 



142 LAWLESS WEALTH 

their heads, and in the stress of their painful situa- 
tion to be no more **kings of finance" nor '^captains 
of industry," but very ordinary persons trying with 
cheap and foolish devices to escape the consequences 
of their own misdoing. In their confusion they 
even attempted to defend the office-boy Shea loan. 
First they said it was secured by a large block of 
valuable stock, very valuable. What stock? Elec- 
tric Vehicle stock. But as Electric Vehicle was 
now known to be one of the side issues of the syndi- 
cate, that would hardly do. Then they said that 
the loan was all right because it was guaranteed; 
but a belated guarantee on a loan without consider- 
ation or real security, made by gentlemen that are 
obtaining the proceeds of the loan, hardly seemed 
worth bothering about. Finally, one of the officers 
of the company said the loan was all right because 
it was secured by a deposit of Consolidated Gas 
bonds. This made a stir, Consolidated Gas being 
a very valuable security. Investigation showed 
that these so-called bonds consisted of promissory 
notes issued by the Consolidated Gas Company, 
when, at Mr. Ryan's direction, it took over the 
New York Gas and Electric Light, Heat and 
Power Company, both companies being syndicate 
concerns, and that this transaction occurred subse- 



LAWLESS WEALTH 143 

quent to the Shea loan. What really happened be- 
tween the two gas companies is too long and too 
remote a story to tell here, but the alleged inter- 
position in the Shea affair was at most a mere mat- 
ter of bookkeeping, was too late to avail anything 
anyway, and was, as a matter of fact, grotesquely 
absurd because the directors had made confession 
of the real nature of the loan when they made resti- 
tution — a singular indication of the fright that had 
seized upon the gentlemen making this blunder. 

Further signs of trepidation were seen in the 
hurried rush of the syndicate to secure its fortifica- 
tions at Albany. When Mr. Charles P. Bacon, 
Kling's attorney, found that Elihu Root had per- 
suaded the State administration to take no steps in 
the matter, and that the prosecuting officers were 
resolved to protect the lawbreakers, he appealed to 
the attorney-general to begin an action to revoke 
the Trust Company's charter. To all impartial 
minds this seemed a reasonable proposal. The 
company had openly and in many dangerous ways 
violated the law. Nothing was clearer than that 
it existed to gather funds from the unsuspecting 
public and deliver such funds to the mills of the 
syndicate. As the law officers refused to punish 
the men that had done these things, therefore the 



144 LAWLESS WEALTH 

game had best be stopped, the house closed, and the 
tools broken up. 

But the syndicate's move upon Albany forestalled 
any such action — It has always had the most mar- 
velous success in getting what it wanted at any seat 
of government, big or little. In this case the law 
department would take no action and the legislation 
demanded in the interest of the depositors was 
blocked by a band of expert lobbyists. 

One of these, a man named Dinkelspiel, was par- 
ticularly active at Albany in the syndicate's behalf. 
Mr. Bacon observed him at work one day and pro- 
tested against his methods, which were exceedingly 
frank as well as energetic. Mr. Bacon said he 
would call the matter to the attention of the author- 
ities and have Dinkelspiel put off the floor of the 
house. Dinkelspiel said : 

*Tou make me tired." 
. Which, I suppose, was true, for he was never 
interfered with by the authorities. 

The legislature declined to act in behalf of 
the public, and the syndicate put in its track-cover- 
ing measure. It was a bit of clever bill-drawing, 
pretending to amend the banking act and really au- 
thorizing the State Trust Company to lose its iden- 
tity by amalgamating with the Morton Trust Com- 



LAWLESS WEALTH 145 

pany, whereof the chief owner is Mr. Ryan. *The 
real purpose of this bill," said Mr. Bacon bitterly, 
"is to enable the State Trust Company to burn its 
books and destroy the evidence contained in them.'' 
But he wasted his breath in protests. Under the 
active guidance of the Republican whips, the bill 
went through with a rush. And so, behind the 
respectable figurehead of Levi P. Morton, the State 
Trust Company passed from sight. 

And with it disappeared the evidence in the 
books. For this was what the syndicate, with such 
manifest signs of agitation, was striving so fran- 
tically to bring about. It had received one lesson ; 
never has it needed to be taught anything twice. 

As to what would have happened if Kling had 
not suddenly thrust his petition into the wheels, 
that is a matter of opinion. There is not the slight- 
est doubt that the money of the depositors had been 
used to help the syndicate in some of the ramifica- 
tions of its enormous operations. One may believe 
that the syndicate intended to replace the money 
it had taken, or one may believe that eventually, 
but for the appearance of Kling, the Trust Com- 
pany would have been depleted and ruined. There 
are precedents for either supposition. But how- 



1 



146 LAWLESS WEALTH 

ever that may be, this combination was caught with 
its hand in the till and was obliged to make abject 
confession, hurried restitution, and an extremely 
awkward and humiliating exit from the premises. 
When the man in your community that has prated 
most about law, order, the welfare of society, and 
the sublimity of honesty is discovered some night 
in somebody else's chicken coop, he presents a very 
unseemly spectacle, and so did certain gentlemen 
of the syndicate. When with much good-will they 
kicked the obdurate Kling out of the American 
Surety Company, they never dreamed what was in 
store for them. And when Kling, who had been 
watching all the time from a crack in the coop, 
suddenly leaped at them out of the dark with a 
constable, there was a shriek of agony and such 
genuine terror that it was literally a trembling syn- 
dicate the constable held up to the world's scornful 
gaze. 

But what was It that the gentlemen were so much 
afraid of? 

Let us not consider too curiously of this, but fix 
our admiring attention on the services to society 
and the ability, energy, and foresight involved in 
breaking the law, evading prosecution, and divert- 



II 



LAWLESS WEALTH 147 

ing to our own profit the money entrusted to us by 
others. For therein lies much instruction concern- 
ing the golden palace and other subjects pertinent 
to this inquiry. 






CHAPTER X 

TOBACCO AND HIGH FINANCE 



Ability, energy, foresight! Upon this blessed 
trinity we believe to rest the beautiful palaces, the 
spacious pleasures, the vast and swelling fortunes | 
of the 10,000; from this origin comes the golden f 
tide on which so gloriously they sail. Ability, } 
energy, foresight! Precious qualities, for the lack J 
whereof the 1,500,000 flat-dwellers and the 2,000,- J 
000 below them must be condemned forever and 
irretrievably to their respective stations. 

So we are accustomed to think. Perhaps we 
shall understand more clearly the difference between 
flat-dweller and palace-builder if we consider im- 
partially the history of a very successful and in some 
ways a typical instance of the centralizing of cap- 
ital, the American Tobacco Trust. 

This institution dates back to 1890, and really 
owes its existence to the growth of the cigarette 
habit that infected this country after the Centennial 

148 :^ 

i 

I 



LAWLESS WEALTH 149 

Exposition of 1876, when the cigarette was. oblig- 
ingly exhibited to us by some of our admired for- 
eign visitors. By 1885 many houses were engaged 
in supplying the rapidly growing demand. These 
houses competed — and, in the end, extravagantly, 
so that none of them could make money. Five of 
the leading cigarette-making firms, to wit: W. 
Duke, Sons & Co., of Durham, N. C; Allen & 
Ginter, of Richmond; Goodwin & Co., and the 
Kinney Tobacco Company, of New York; W. S. 
Kimball & Co., of Rochester, N. Y., and Oxford, 
N. C, met in New York in January, 1890, to con- 
sider ways of limiting competition. With no in- 
tention to speak unfairly or disparagingly, I sup- 
pose it was as commonplace a lot of men as ever 
got together. Some of them had been moderately 
prosperous, some had been in business a very long 
time and had little to show for it, and at least one 
of them was hard upon the shoals and had out the 
kites of many notes. 

But they met and stumbled upon a plan of or- 
ganization, modeled baldly upon a hundred other 
such combinations then and now in existence. This 
American Tobacco Company was launched (con- 
genially) in New Jersey, where it put to sea Jan- 
"^^y 3i> 1890. Capital, $25,000,000; assets, 



ISO LAWLESS WEALTH 

chiefly speculative and paper; Investment, nothing 
— literally nothing, for the men that formed the 
company did not contribute one cent of money to it. 
They put in their respective and unprofitable busi- 
nesses, but these, while important to the total cigar- 
ette product of the country, were trifling compared 
with the total tobacco manufacture. Of the capi- 
tal stock, $2,000,000 was set aside for what were 
called the '4ive assets" of the five combining firms. 
Nobody ever knew what **live assets" meant; for 
the total real estate, free and otherwise, of all the 
firms (if you will believe me) amounted to no more 
than $400,000, and the value of all the real estate, 
machinery, tobacco and cash was, according to one 
statement, about $1,000,000. 

Of the remaining stock a little less than $23,- 
000,000 was distributed among the firms. If a 
sworn statement subsequently made be true we may 
derive from these proceedings a pleasing illustration 
of ability, energy and foresight, because according 
to this statement the apportionment was effected 
by the gentlemen present writing figures on slips 
of paper that were deposited in a hat, shaken and 
drawn out. According to another, and an ex-parte 
statement, the apportionment was reached after 
**hard bargaining." However this may be, the 



LAWLESS WEALTH 151 

watermelon was cut, Allen & Ginter and the Duke 
firm receiving $7,499,000 each and the other firms 
$2,499,000 each. 

The firms then put part of their holdings on the 
market — which they could easily do without im- 
pairing their control of the enterprise. They found 
that the public could be induced to buy the stock 
at 117. In a day, therefore, without effort, with- 
out investment, without expenditure or risk, they 
had been presented with millions and had still their 
business exactly as before, only better, because now 
competition among them was eliminated. 

From the first the new Trust was blessed with a 
singular and certain instrument of prosperity that 
lay in a fixed habit of the American cigarette 
smoker. No cigarette consumer ever went into a 
shop and asked merely for a package of cigarettes, 
but invariably he demanded a certain brand. As 
a rule he would not be content with anything but 
this brand; hence every dealer was compelled to 
maintain stocks of all the brands most called for. 

This one little fact made treasures for the Amer- 
ican Tobacco Trust and would have made them if 
the managers of the Trust had been wholly incom- 
petent. The Trust controlled the supplies of many 
of the most popular brands, **Sweet Caporal," **01d 



1 



152 LAWLESS WEALTH 

Judge," **Richmond Straight Cut," and the like. 
Dealers must have these or cease from business. 
Here was a power incalculable. The Trust was 
engaged in suppressing its competitors. Any dealer 
that would not help its cause it could practically 
ruin by refusing to sell him the goods he must have. 

Another powerful factor making for its pros- 
perity lay in its opportunities to affect its securities 
in the stock market, of which it may be well to cite 
here one illustration from the records. In Decem- 
ber, 1895, after a meeting of the directors of the 
x^merican Tobacco Company, it was announced to 
the public that, owing to the unsatisfactory condi- 
tion of the business, the usual semi-annual dividend 
must needs be passed. Instantly, down crashed the 
stock, the price declining in a few days from 1 17 to 
63, assisted in its downward course by the gloomy 
statements of the men on the inside of the com- 
pany's affairs. 

When the stock would decline no more, the men 
on the inside loaded up with all of the stock they 
could get — at bottom prices. 

Soon after, the directors met and declared a cash 
dividend of twenty per cent, and a scrip (watered 
stock) dividend of another twenty per cent. 

At this astounding news, the stock rose with a 



« 



LAWLESS WEALTH 153 

bound. Up and up it went among the stars, flying 
higher day by day. When it hovered at 180 or 
thereabouts, the men on the inside unloaded the 
stock they had bought at 63 and reaped large 
profits. 

The scrip they had issued as a dividend bore six 
per cent, interest guaranteed. Its only purpose 
was that the men in charge of the property should 
make to themselves a present of millions out of the 
enforced contributions of tobacco consumers and 
retailers. 

Repeated financiering of this kind gave to the 
stock a bad name among conservative brokers and 
bankers, who looked upon it with uneasiness and 
rejected it as collateral except upon great margins. 
But the operation drew additional strength for the 
American Tobacco Company as one competitor 
after another was allured by these fabulous profits. 

There were still left many strong competitors 
that would not surrender to either force or allure- 
ment, and most prominent among them was the 
great Liggett & Myers firm of St. Louis. Against 
these opponents the Trust waged a long, bitter and 
costly war. The scope of its operations had been 
greatly enlarged by the firms that had joined it; 
smoking and chewing tobacco had been added, and 



154 LAWLESS WEALTH 

later it absorbed the snuff and cigar industries ; but 
the hot center of its fight with Liggett & Myers 
continued to be over plug tobacco. 

Liggett & Myers had a brand of plug called 
**Star," which was very popular. To oppose 
this the Trust put forth a brand called ''Battle 
Axe," and to push "Battle Axe" into favor and 
oust the ''Star" the Trust lost $1,000,000 a year. 

The president of the American Tobacco Com- 
pany and the originator of the brilliant "Battle 
Axe" idea was J. B. Duke. The treasurer was 
George Arents, of the brokerage firm of Arents & 
Young, Wall Street. Early in 1898 James R. 
Keene gathered certain facts in regard to the com- 
pany's business and politics, and concluded that the 
losses had been great and unnecessary, and that if 
the v$ 1, 000,000 a year "Battle Axe" drain were 
eliminated and the enterprise put upon a straight 
business basis the company could water its stock 
to the extent of doubling its capitalization and could 
still make ten per cent, dividends. 

As to Liggett & Myers, Keene learned that the 
warfare was wholly needless, because Liggett & 
Myers would consent to a union of plug manufac- 
turers providing the officers of the American To- 
bacco Company had nothing to do with it, Keene 






LAWLESS WEALTH 155 

determined to secure a majority of the $17,900,000 
of the common stock of the American Tobacco 
Company, with enough of the preferred to give 
control of the property, then to depose Duke and 
Arents, organize a new concern to be called the 
Continental Tobacco Company, so as to take in 
Liggett & Myers, P. J. Sorg, the Drummond To- 
bacco Company, and other producers of plug, and 
thus gain peacefully and inexpensively the ends that 
the blundering Trust was trying to secure with war 
and money. 

Mr. Keene brought in to help him Oliver H. 
Payne, of the Standard Oil crowd, who was Wil- 
liam C. Whitney's brother-in-law; Herbert C. Ter- 
rell, afterward confidential attorney for the presi- 
dent of the Sugar Trust; and Moore & Schley. It 
was just before the Spanish- American War, and the 
whole market was depressed. Mr. Keene and his 
associates went quietly at their work, and so adroit- 
ly gathered in the stock that the men on the inside 
of the company's affairs never suspected what was 
happening. When the books closed and the happy 
gentlemen suddenly awoke to find themselves de- 
feated and menaced with the imminent loss of their 
ship, the price of common stock roamed as high as 



156 LAWLESS WEALTH 

$800 for 100 shares overnight — that is, for the 
leasing of stock for election purposes. 

The Keene associates got the bulk of their stock 
at about 90. Their purpose was to put it up to 
200 and then issue the water. It rose rapidly to 
well above par, and all looked favorable for plan 
and planners. Keene's first determination, upon 
which he w^as wholly fixed, was to remove Duke 
and Arents. He was in daily conference at Moore 
& Schley's office with members of that firm, with 
Colonel Payne, and with Mr. Terrell. When they 
were ready, one day they called in Captain Duke 
and told him that he was deposed. 

Mr. Duke is a person of some temper, and, in 
violation of the accepted rules of the game, he let 
his feelings get the better of him, which was prob- 
ably well for him on this occasion. He made one 
leap into the center of the group and denounced the 
whole scheme. They had him in their grip so far 
as the captaincy was concerned ; he knew that. But 
he could make a lot of trouble for that ship and 
probably scuttle her, and he vehemently swore he 
would do it. He said that he would not only throw 
overboard all the American Tobacco stock that he 
held (which would be exceedingly bad for those 
trying to put the price up to 200) , but he would get 



LAWLESS WEALTH 157 

a new ship of his own and compete in the cigarette 
business. 

Perhaps his violence frightened somebody; per- 
haps there were more plottings involved than those 
of Keene. Anyway, Moore & Schley and Terrell 
and Payne cast in their lot with Captain Duke. At 
this unexpected turn of affairs, Keene surren- 
dered the part of his scheme that contemplated the 
marooning of Duke and Arents, and a new bargain 
was struck that dealt only with the manipulating 
of the stock. 

To this work Keene now turned his attention, 
intending to put the stock up to 200, and telling his 
friends that this was the opportunity of a lifetime, 
which it certainly seemed to be. But somehow the 
'Stock didn't go up. Mr. Keene chafed and fumed 
daily to Moore & Schley, and daily he was regaled 
with reasons. When his patience had been ex- 
hausted, he announced that he would put the stock 
up on his own account without anybody's assistance. 
Whereupon $3,100,000 of the common stock that 
was in the treasury of the i^merican Tobacco Com- 
pany was issued to Moore & Schley at io8f , which 
was then the market price, and immediately and 
rapidly the stock was advanced until it reached 
150! 



158 LAWLESS WEALTH 

But here another row broke out among the new 
associates. Keene declared that some one in the 
Moore & Schley end of the combination was 
secretly selling his stock at 150 instead of holding 
It until it should reach 200, which was the agree- 
ment. Of course so long as insiders let their stock 
go at 150, it was useless to talk of putting the thing 
above that figure. Keene accused Moore & Schley 
and was in turn charged with treachery. In the 
end Keene threw over the whole venture. Within 
two days he sold all his tobacco stock for what he 
could get, from 147! down to 132^, clearing about 
$1,250,000, but missing the monstrous harvests 
that he had expected from the stock-watering. He 
was out, but Payne and the Standard Oil crowd 
were in and stayed in, and that is where Standard 
Oil influence in the Tobacco Trust began. Payne 
had snapped up most of Keene's stock. 

But now the new crowd that surrounded Captain 
Duke turned back joyously to the original scheme 
of watering the stock. The capitalization of 
American Tobacco was doubled. Pretty soon it 
was still further increased. The Continental To- 
bacco Company was organized and took in all the 
plug-tobacco manufacturers except Liggett & 
Myers, who absolutely refused to ship under Cap- 



LAWLESS WEALTH 159 

tain Duke. Various devices were adopted to swell 
still further the enormous capitalization without 
seeming to increase it, devices like the subsidiary 
company and the holding company. The Ameri- 
can Snuff Company was formed to establish a 
monopoly in the snuff business, and the American 
Cigar Company to monopolize cigar-making. 
Every time the capital was increased, a heavier 
tribute was imposed upon retailer and consumer. 
After some years it occurred to the gentlemen in 
actual charge of the Trust that one source of profit 
had been overlooked, and thereafter the tobacco 
producer began to feel a steady contraction of his 
market and a decline of the prices that he obtained. 



) 



CHAPTER XI 

THE SYNDICATE COMES IN 

Meantime, Mr. Ryan and his friends had 
noted well the progress of the Tobaccoi Trust, and 
at the beginning of 1899 ^^^Y s^^^ to have thought 
that the time had come for them to participate in 
this good thing. Accordingly, and for purposes 
that will be more apparent as this narrative pro- 
ceeds, they organized the Union Tobacco Com- 
pany of New Jersey. Old friends of ours appear 
in the list of incorporators — ^Thomas F. Ryan, P. 
A. B. Widener, W. L. Elkins, Thomas Dolan, and 
R. A. C. Smith, and with gratification we may ob- 
serve that the new enterprise had the sage advice 
and directing counsel of Elihu Root, now Secretary 
of State of this nation, then confidential adviser of 
Thomas F. Ryan. 

The capital stock of the Union Tobacco Com- 
pany was $10,000,000, of which, kindly note, only 
$Ij350,ooo was ever paid for. The news of its 

160 



LAfFLESS WEALTH i6i 

forming occasioned many painful moments on 
board Captain Duke's ship. The navigators there 
easily foresaw trouble. Mr. Ryan and his friends 
soon found the talent necessary to embark on a 
large scale in the cigarette and tobacco business. 
Among the experienced men that they secured was 
William H. Butler, who had been vice-president 
of the American Tobacco Company and the orig- 
inator of the **Sweet Caporal" cigarette. It was 
evident, therefore, that the Union Tobacco Com- 
pany was equipped for formidable rivalry. Be- 
sides, the making and selling of tobacco was only a 
part of the business of the American Tobacco Com- 
pany. Manufacturing was a good cover to the 
issuing and manipulating of securities from which 
the bulk of the great profits was derived, and the 
men in the Duke party knew very well that in the 
issuing and manipulating of securities the Ryan- 
Widener-Elkins-Root syndicate had no equals in 
this world; also that to such experts $10,000,000 
of capital was as good a foundation as $100,000,- 
000. A still greater danger lay In the proved and 
unequaled power of the Ryan party to influence 
legislation and manipulate government — a matter 
of the first importance to the Trust's welfare. 
The first moves by the Union Tobacco Company 



1 



1 62 LAWLESS WEALTH 

were very disconcerting. It had acquired the Na- 
tional Tobacco Company, a concern making a brand 
of cigarettes called the ^'Admiral"; it bought 
a majority of the stock of Blackwell's Durham 
Tobacco Company, of Durham, N. C, one of the 
firms that had remained outside of and had fought 
the Trust; and there were rumors that it was 
likely to take over or combine with the great 
Liggett & Myers institution. 

These operations caused additional misery to 
Captain Duke and his friends. In, the making of 
something out of nothing they had been enormously 
successful, and yet, it must be admitted, in a crude 
and blundering way. Opposed to them were men 
that had been all their lives engaged in making 
something from nothing and had shown in the 
process both finesse and industry. From the Duke 
ship the outlook seemed stormy indeed. Mean- 
while the Ryan-Root syndicate proclaimed that it 
purposed to press resolutely ahead and to compete 
vigorously in every department of the tobacco 
trade. With hand upon heart, so to speak, it de- 
clared to the public that its one dear object was to 
combat monopoly. Before the agonized gaze of 
the retail trader, groaning and sweating under the 
screws of the Trust, the coming of the new com- 



LAPVLESS WEALTH 163 

pany was a joy unspeakable. To the persecuted 
consumer, who for some years had been noticing 
a decline in the quality of his tobacco, there showed 
at last a promise of relief and fair treatment. To 
break the monopoly — that was the thing. Mr. 
Ryan, Mr. Widener, and Mr. Root (whose sympa- 
thies against monopoly in all its forms can be read- 
ily understood) bent themselves assiduously to this 
congenial task. And this is how they did it. For 
six months or less the gentlemen on Captain Duke's 
quarter-deck looked into the muzzle of the pistol 
held by the syndicate. Then they offered to sur- 
render. What did the syndicate want? Well, 
it wanted to be bought. For how much? For 
$10,000,000 and a share In the control of the Trust 
ship. That was all. 

The terms were hard, but there was no other 
way out of the situation. A battle with the syndi- 
cate would have sunk the ship and all on board. 
There were too many and too big guns involved. 
So the Duke party agreed to the terms. They 
issued $35,000,000 of additional American To- 
bacco stock, paid $10,000,000 of it for the paper- 
fed Union Tobacco Company, bought the subsidiary 
companies that the Union gentlemen had organ- 
ized, and v/hile Captain Duke still stood at the 



I 



1 64 LAWLESS WEALTH 

wheel and Issued orders, the new crowd studied the 
charts below and laid the course, and that new 
crowd was composed of Mr. Ryan and his friends. 

Probably their most remarkable achievement was 
their performance with Liggett & Myers. The 
attempted Keene mutiny had revealed the fact that 
Liggett & Myers would join a combination, or sell 
to one, opposed to the American. The Ryan- 
Root-Widener syndicate (or some one in their In- 
terest) , acting on this hint, made up a pool of 
$200,000 and with it secured an option for sixty 
days to purchase the Liggett & Myers business at 
$11,000,000. Before the sixty days expired the 
American had capitulated to the Union. There- 
upon the syndicate compelled the American to pur- 
chase of it the Liggett & Myers business at $18,- 
000,000, thereby netting a profit of $6,800,000 
on an expenditure of $200,000. 

The profits of the syndicate In its Union Tobacco 
deal were stupendous. It put into the venture 
$1,350,000. Besides securing control of one of 
the greatest profit-makers in the world, the syndi- 
cate cleared on the Liggett & Myers deal $6,800,- 
000, on the sale of Union Tobacco Company $8,- 
650,000, and in operations in other concerns like 



LAWLESS WEALTH 165 

the Blackwell Company probably $2,000,000 more, 
comprising a total of about $17,000,000. 

This in less than six months, without making 
anything, selling anything, or developing anything; 
and also without effort, risk, or expenditure, except 
for options and for the issuing of fictitious stock. 

Of the $35,000,000 of additional iVmerican 
stock, $21,000,000 went as another scrip dividend 
to the holders of American Tobacco, who were thus 
again presented with riches that represented noth- 
ing but the enforced contributions of the public. 

No sooner was this pleasant affair concluded 
than the new directors of the ship began some dizzy 
evolutions on a broader sea. 

You may recall that the subsidiary company or- 
ganized to control the plug trade and fight Liggett 
& Myers had been called the Continental Tobacco 
concern. It was floated in New Jersey, December 
9, 1898, with $75,000,000 capital stock, half com- 
mon and half preferred, of which there was issued 
$31,145,000 of preferred and $31,146,500 of 
common. Its business was unsatisfactory because 
I of the cost of fighting the firms still outside the 
Trust and because it was monstrously overcapital- 
ized to start with, so that its ntt earnings for 1899 
were only $2,032,756, and It paid only three per 



1 66 LAWLESS WEALTH 

cent, on the preferred and nothing on the common. 
It was with this branch of the business that the 
new control elected to work. The war with Spain 
had brought about greatly increased revenue duties 
on tobacco. After the war closed, the tobacco 
interests desired to have these duties reduced to a 
peace basis, but on the plea that the Government 
needed the money Congress had refused to make 
any reduction. 

The new interests in the American Tobacco Com- 
pany had very good friends in Washington, for one 
of the remarkable features of the Ryan syndicate 
is the close relations it has always managed to main- 
tain with government^ — city, state, and national. , 
Of its many friends in Washington the best seem i 
to have been in and about the Finance Committee | 
of the Senate, where all these matters of the revenue ■ 
duties would be determined. Afterward it was 
learned that Senator Nelson W. Aldrich, of Rhode 
Island, held $1,000,000 of tobacco^ stock. Very 
likely, therefore, he was not among the deadly or 
implacable enemies of the Trust. Senator Aldrich 
was chairman of the Finance Committee. Two 
other members of the Senate were also holders of 
tobacco stock. Veiy likely, too>, these gentlemen 
were not wholly inimical to the Trust, 



LAWLESS WEALTH 167 

In secret sessions the Finance Committee of the 
Senate determined to reduce the tobacco tax to the 
peace basis. It also determined to make in the 
revenue laws certain changes that would be greatly 
to the benefit of the Trust and to the disadvantage 
of the Trust's competitors. These were changes 
(difficult to make clear in this limited space) in the 
restrictions governing the sizes of packages, changes 
that had the effect of enabling the Trust to under- 
sell makers of brands then on the market by offer- 
ing larger packages for the same price. 

Knowledge of these impending changes was kept 
a profound secret — except from the men that con- 
trolled the Trust. 

Immediately these men went into the market and 
bought all the Continental stock they could find. 
When they began to buy it was quoted at 1 2 and 
was Inert. Unluckily, the time was short and they 
had no chance to work the device by which a man 
buys while he pretends to sell, and thus keeps the 
price from rising. The gentlemen were compelled, 
for once, to buy outright, and after a time the stock 
began to feel the effects. The price rose to 17, 18, 
20, 22 — but not before, at bottom prices, the gen- 
tlemen had secured vast loads of it. 

When this had been done^ out came the news 



1 68 LAWLESS WEALTH 

from Washington that the revenue duties were to 
be reduced, and up bounded the prices of all to- 
bacco stocks. 

But the gentlemen that managed the Trust had 
secured theirs beforehand, and they now proceeded 
to reap the golden harvest, which amounted for 
them to about $15,000,000. 

Meantime, the capital stock of the American 
Tobacco Company, which had been $25,000,000 
in 1890, was nominally $68,500,000 in 1900, and 
with the subsidiary and other companies amounted 
to $200,000,000 and more. 

With every desire to be temperate and fair, I * 
am obliged to say that, so far as I can discover, ? 
the creating of this colossal something from noth- • 
ing had involved no risk, no effort, little or no 
investment, no development of any industry, no 
economic equivalent, and no higher type of men- 
tality than controls the simplest operation, of the 
smallest country store. 

Nor have we, by any means, seen the last of this 
easy fortune-making. In June, 1901, the gentle- 
men in control, under the pretense of extending to 
foreign and less favored lands the blessings of the 
trust principle, formed a new concern, the Con- 
solidated Tobacco Company, and of course out 



LAWLESS WEALTH 169 

came a new flood of water. TKe capital stock of 
the Consolidated Tobacco Company was $40,000,- 
000, and It issued $157,378,200 of four per cent, 
bonds, making its total capitalization nearly $200,- 
000,000. With these fresh tokens of something 
from nothing it took over the American and the 
Continental, giving $100 in four per cent, bonds 
for every $50 of American and $100 in four per 
cent, bonds for every $100 of Continental. The 
public tolerance being not yet exhausted, the same 
old game was worked again on these issues, and 
again the insiders, having knowledge of what was 
toward, picked up Continental stock in advance and 
added further millions to their vast hoards. 

In pursuance of the decision to extend to our 
friends abroad the joys of a business thus con- 
ducted, the Trust now sailed for British waters. 
As to what happened there I think It best to sum- 
mon a witness. I have found that to question in 
any way the ability, energy, and foresight of men 
that in a short time and by these methods accumu- 
late great fortunes is fraught with some danger. 
It is attacking the most sacred doctrine of that 
commercial religion of which they are the high 
priests. I have an Idea that the voyage of this 
American Trust to England was not a brilliant sue- 



I70 LAWLESS WEALTH 

cess : I have something more than a suspicion that 
the ship was badly handled and only by chance and 
the dexterity of Mr. Ryan rescued from the hardy 
bands of attacking Englishmen ; but It would prob- 
ably be sacrilege and impiety to say so. Everything 
done by the leaders of our financial world must be 
a success and must, If properly considered, reveal 
to us anew how Infinitely Inferior are the rest of 
us. 

In Frank Leslie^ s Popular Monthly for March, 
1903, there appeared an account of these matters 
that I understand has been approved by persons 
high In authority In the Trust, so I have secured 
permission to quote It here: 

"A conflict that was brief In duration but decis- 
ive and vastly Important In Its bearing upon the 
tobacco trade of the world, was the struggle waged 
during the past year and a half In the English mar- 
ket. This International war started In the year 
1 90 1, when the Americans bought Ogden's Lim- 
ited, one of the best known of British tobacco 
houses, and began a campaign of American methods 
to push Its goods. 

*'The British tobacco trade was thrown into great 
excitement by this step. The Imperial Tobacco 



LAWLESS WEALTH 171 

Company was organized, taking in the leading Eng- 
lish houses, and proceeded to fight the invaders. 

'^Intending to wipe out the Americans by a single 
master-stroke, the Imperial offered to divide one^ 
fifth of its total profits among dealers not handling 
American goods, and in addition announced that 
$200,000 would be distributed among the dealers 
taking advantage of its offer within the first six 
months. Not to be outdone by his adversaries, 
Mr. Duke promptly announced that his company 
would distribute $1,000,000 per year for four 
years, and that all the profits of Ogden's for the 
same period would be divided among the dealers. 
Perhaps the most remarkable feature of Mr. 
Duke's royal oft'er was that it contained no stipu- 
lation as to the exclusive handling of his goods. 
He simply agreed to give $4,000,000 and all the 
profits of Ogden's for four years to the British 
tobacco dealers, irrespective of whether they han- 
dled the Imperial brands or not. England gasped 
at the daring of the move, for such methods of 
capturing trade had never been heard of there be- 
fore. 

'The rivals presently decided, however, that 
peace was more profitable than war. In the aut- 
tumn of 1902 it was announced that an amicable 



172 LAWLESS WEALTH 

agreement had been reached, by the terms of which 
each was to handle the goods of the other In Its 
own territory, while the British- American Tobacco 
Company had been formed to handle the trade In 
foreign countries. Mr. Duke gave a magnificent 
dinner to his associates and some of his late rivals 
and then sailed away for home. The British press 
jubilantly announced that a crushing defeat had 
been administered to the Yankees, and that the lat- 
est American Invasion had been a failure. 

''As a matter of fact the terms of the peace treaty 
were as follows : The Imperial purchased Ogden's 
at Mr. Duke's own valuation and gave the Amer- 
icans a large, though not a controlling Interest, In 
their company. It was also agreed that the Im- 
perial should have the trade of Great Britain and 
Ireland to Itself. It was likewise arranged that 
the American company, in which of course the Brit- 
ish had no interest, should remain In undisputed 
possession of the United States, Cuba and the Phil- 
ippines. To deal with the outside trade the British- 
American Tobacco Company was formed, with 
both English and American directors, but with the 
Americans in control. In other words, the Im- 
perial surrendered the entire foreign market to the 



LAWLESS WEALTH 173 

control of the Americans and gave them an interest 
in its own business as the price of peace." 

As to the activities elsewhere the same authority 
says : 

**In the field of the domestic-made Havana cigar 
— that is, of cigars manufactured in the United 
States from Havana tobacco — ^the Trust is repre- 
sented by the Havana- American Company, which 
secured a number of the factories at Tampa, which 
is the chief seat of this industry. It also controls 
the Havana Tobacco Company, with factories in 
Havana, which supplies the bulk of the Cuban- 
made Havana cigars Imported Into the United 
States." 

It will be seen, therefore, that the province of 
this business is truly enormous. 

But to return to our own affairs. 

The Consolidated Tobacco Company was by no 
means the last illustration of high finance that these 
records afford. If I may be believed by the un- 
initiated, the device that had been worked so often 
to the Injury of the public and the ruin of the re- 
tailer was employed again. On September 9, 1904, 



174 LAWLESS WEALTH 

there appeared a new American Tobacco Com- 
pany, which, with another flood of water, took over 
the Consolidated, the Continental, the old Ameri- 
can, and all the rest of the outfit, and again multi- 
plied the capitalization on which the country must 
furnish the profits. 

For instance, the new company retired the $157,- 
378,000 of the Consolidated Company's four per 
cent, bonds by giving one-half six per cent, pre- 
ferred stock in the new company and one-half four 
per cent, bonds. Six per cent, bonds were given 
for old American Tobacco preferred stock at the | 
rate of 13 3^^ a share, and for Continental preferred I 
at ii6#. Besides all these securities the new com- ^ 
pany had $100,000,000 of common stock of its 
own, and in the year of grace 1906, on this stock 
thus made of nothing, it paid 22^ per cent. In divi- 
dends. 

At the present time, the total capitalization of the 
whole enterprise. Including the dummy, subsidiary, | 
alias, assisting, and other companies Is about 
$500,000,000, all created from $25,000,000 of 
speculative and paper assets put together by Captain 
Duke and his friends in 1890. 

As an Indication of how the thing has grown, 



LAWLESS WEALTH 175 

I quote figures from the American Tobacco Com- 
pany alone, showing nine yearsVexpansion: 

Balance-Sheet Liabilities 

Dec. 31, 1897 Dec. 31, 1906 

Preferred stock $11,935,000 $78,689,100 

Common stock 17,900,000 40,242,400 

Scrip 3,762,340 

Six per cent, bonds 55,208,350 

Four per cent, bonds 61,052,100 

Profit and loss surplus 7,447,849 30,353,888 

All balance-sheet liabilities 42,289,236 278,628,564 

Balance-Sheet Assets 

Real estate, etc $4,009,143 

Patents and good-will 24,867,263 $123,331,600 

Leaf tobacco and manufacturing 

goods ._ 8,591,777 31,187,814 

Stock of foreign companies.. 1,264,655 21,495,085 

Stock of other companies 70,451,549 

Cash 1,538,751 5,163,965 

Bills receivable 2,017,645 26,998,551 

So stands this colossal and astounding structure 
erected upon the good-natured tolerance of the 
American people. The like successful exploitation 
has never been known in any land at any time. One 
of the men that have drawn golden fortunes from 
it, one that in 1890 was penniless and harassed 
with debts, now counts more than $40,000,000, 
made without labor, without effort, without invest- 
ment, without risk, without the vestige of any re- 
turn to societ}\ 



176 LAWLESS WEALTH 

On the Increasing mass of stocks and bonds, the 
Issuing of which has occasioned this man's fortune, 
there have been paid, and are now being paid, 
great sums In dividends and Interest charges. 

Where do these dividends and Interest charges 
come from and who pays them ? 

And now we reach the heart of the whole 
matter. 



CHAPTER XII 

THE TRUE DIMENSIONS OF A GREAT MONEY- 
MAKING MACHINE 

I OFFER here for consideration two isolated 
facts : 

I. At one o'clock on the morning of December 
I, 1 906, three hundred armed men rode into Prince^- 
ton, Ky., seized the night-watch, locked up the 
town's fire apparatus, and proceeded to- bum two 
tobacco warehouses reported to be owned by or con- 
nected with the Tobacco Trust* 

*I should observe here that in behalf of the American To- 
bacco Company it is urged that the company had no interest 
in these warehouses, and that the raiding and burning of to- 
bacco warehouses that disturbed Kentucky in the winter of 
1907-1908 were not directed against the company, nor a re- 
sult of anything the company had done. One of the burned 
warehouses at Princeton, according to this statement, "be- 
longed to an Irish manufacturer named Gallagher, and one of 
them belonged to the Imperial Tobacco Company." To judge 
of the full rich humor of this remark we must return to a 
foregoing page and reread the account of the division of the 
world's territory between the American and English interests. 
And then we may well recall such despatches as this, sent out 
by the Associated press : 

Louisville, Jan. 9. — Militiamen left to-day for Lebanon to 
protect the property of the American Tobacco Company, 
which has been threatened by night-riders. 

177 



178 LAWLESS WEALTH 

While the fires were under way the armed men 
were drawn up in lines of defense about them and 
prevented any attempt to extinguish the flames. As 
soon as the warehouses were destroyed, the men re- 
leased the watch and the fire apparatus and rode 
away. Three hundred thousand pounds of to- 
bacco had been burned. 

The men engaged in this outbreak of violence 
were not bandits nor ruffians; they were peaceful 
farmers. They did not desire wantonly to destroy 
property; they had been goaded by what they re- 
garded as extortions and fraud against which they 
had no protection, to revenge themselves in the only 
way in their power upon the men that had oppressed 
them. 

2. In April, 1907, Hermann Beck, a well-known 
retail tobacconist of Portland, Ore., having lost 
his once flourishing business, committed suicide. 
He had lost his business because he had been driven 
out of It by the Tobacco Trust. 

The first of these incidents illustrates what the 
Trust has done for the producer; the second, what 
it has done for the retailer. The two being multi- 
plied and extended indicate where the money has 
come from that paid the dividends and interest on 
the watered American Tobacco securities. 



LAWLESS WEALTH 179 

The United Cigar Stores Company, a branch 
of the Trust, has more than 500 retail cigar stores 
in the country (183 of them in New York City), 
and speaking roughly, each of these represents a 
former retailer that has been deprived of his busi- 
ness. The method by which he has been deprived 
of it is one of the few operations of the Trust that 
have been visible to the eyes of the layman. It 
is a process that most observant persons must have 
seen or known of — the little independent dealer 
overpowered and crushed by the big Trust store 
next door — but few are aware, I suppose, of the 
tragedies that are sometimes involved in the crush- 
ing. Some of the crushed dealers have been old 
men, whose one source of livelihood lay in their 
little shops. Some have been Civil War veterans, 
some have been for many years in the one place and 
the one trade, some have been cripples and invalids. 
All have gone the one way when the Trust started 
to capture their businesses. Sometimes the Trust 
has resorted to extreme measures to pull them 
down. It has induced their landlords to raise their 
rent to unendurable figures ; it has bought the prop- 
erty they rented ; very often it has pushed them to 
ruin by giving tobacco away or selling at prices 
that made competition impossible. A certain 



i8o LAWLESS WEALTH 

dealer in Broadway, New York City, that has for 
years bravely resisted the Trust has been fought 
from two cigar stores adjoining him. For one of 
these the rental is $20,000 a year, which is said 
by one authority to be more than a year's total sales 
in that store. On the morning that this particular 
place opened, the man it was designed to crush 
walked into it and saw behind the counter four 
salesmen that had formerly been independent cigar 
dealers and had been driven out of business by the 
Trust. It was now using them to drive out others. 
Such as are young and active among the ruined 
tradesmen can usually find (for a time) employ- 
ment with the Trust, employment at small salaries 
and under humiliating conditions. The older men 
shift for themselves or go to the poorhouse. 

I do not know how many suicides like that of 
Hermann Beck have resulted from these operations. 
The remaining retailers say there have been many. 
Certainly Beck's is not the only case. The whole 
history of the development has been a story of cruel 
hardship. I will give one example. 

Joseph Liebman kept for many years a cigar 
store at No. 264 West 125th Street, New York 
City. Agents of the Trust came to him about 
four years ago and told him that he had better re- 



LAWLESS WEALTH i8i 

tire from that neighborhood, as the Trust was 
about to open a store there. Liebman declined 
to move. The agent said that he would be crushed 
as other small dealers had been crushed before him. 
He replied that he had a good trade and plenty of 
strong friends and was not afraid of competition. 
The Trust opened a store ntyit door. Liebman was 
undismayed. The Trust store began to give away 

I cigars and tobacco. Liebman held on. Then the 

! Trust leased the ground on which Liebman's store 
stood and bought the building. As soon as his term 

I , expired, the Trust put him into the street with his 
stock and fixtures, which he was obliged to place in 
storage until he could find quarters at No. 201 

I West 125th Street. Now he has to operate a 
barber's shop to make a living. 

This Is a typical case: wherever the Trust has 
appeared it has achieved similar triumphs ; its path- 

j way to success and profits has been over the ruins 
of the small tradesman's prosperity. On a certain 

I stretch of Broadway where ten years ago were 
thirty-six Independent cigar stores are now but six; 
and the former proprietors of the other thirty are 
either salesmen for the Trust, servitors, dependent 
for their bread upon whim, fancy, and caprice, sub- 
ject to espionage and suspicion; or they have sought 



1 82 LAWLESS WEALTH 

other work; or they have died. And so the Trust 
has wrought everywhere. 

As for the producer, that is a still more melan- 
choly story. From time immemorial in the tobacco- 
raising regions tobacco leaf had been sold at the 
free competition of buyers. There was never any 
quoted price for tobacco as there is for wheat or 
cotton, but the farmers brought their tobacco to 
market and the buyers were wont to bid for it. The 
Trust has changed all this, for now in a great part 
of the tobacco region there is but one buyer. The 
Trust makes the price what it pleases, and the 
farmer must accept this price or take his tobacco 
home again. 

Under the operation of this system, such tobacco 
as for years had brought in a free and open market 
SIX to eight cents a pound, sells for three cents a 
pound or less. The land that had formerly pro- 
duced $75 to $200 an acre now yields less than 
half of its former returns, and a distinguished Ken- 
tuckian has calculated that in his State, because of 
the operation of the Trust, the returns to the to- 
bacco farmer are less than twenty cents a day for 
his labor. 

In four of the countries of Europe — France, 
Italy, Austria, and Spain — tobacco is a government 



II 



LAWLESS WEALTH 183 

business, and these four governments buy in the 
United States every year about one million pounds 
of tobacco. It is denied that there has been any 
understanding between the Trust and the buyers 
for these governments by which competitive buying 
has been destroyed. Nevertheless, the same dis- 
tinguished Kentuckian is responsible for the state- 
ment that the buyers for the governments now 
restrict themselves to certain territory where they 
buy without competition and that they keep out 
of the rest of the tobacco-growing region. Of 
course, those that understand the methods of the 
Trusts will hardly need to be told that such a con- 
dition might easily exist and still there might be 
no treaty, agreement nor understanding that could 
be adduced in court. The Trusts are not conducted 
by idiots. They have never been found butting 
their heads against the law when they can in other 
ways and safely get what they want. 

Anyway, the departure of the government buy- 
ers destroyed the last chance of competition, and 
gave over the producer bound to his despoiler. 

Against these conditions the farmers of the South 

have protested to Congress, to the Department of 

Commerce and Labor, and to the courts. Yet the 

I law has never been enforced upon this Trust, nor 



1 84 LAWLESS WEALTH 

has the government until lately given It any greater 
heed than is involved in some feeble, perfunctory, 
and quickly abandoned inquiries. 

Meantime, there is the consumer, of whom no- 
body seems to think much. What does It mean for 
him that competition has been eliminated, that the 
profits of the American Tobacco Company have 
been swollen to these stupendous figures, that the 
owners of the Trust are becoming the richest men 
In the world? 

This is what It means for him : 

The Trust has secured the ownership of many 
well-known brands of Havana, Key West and do- 
mestic cigars, brands that have been familiar for 
years upon years to all smokers and that for years 
upon years have maintained an even degree of ex- 
cellence. Many good judges of tobacco assert that 
under the names of these brands the^ Trust puts 
forth steadily a worse quality of goods, until at 
last the brand dies. Their theory is that before 
its death the Trust has sold great quantities of the 
brand, these goods have been produced at perhaps 
one-third of the original cost, and the profits have 
been enormous. 

So far has this work been carried that some of 
the brands of cigarettes and smoking tobaccos for- 



LAWLESS WEALTH 185 

merly best known have disappeared entirely from 
the market. Why should the Trust not do as it 
pleases in these matters ? Every day the consumer 
finds greater difficulty in discovering a cigar store 
outside of the Trust; every day a greater propor- 
tion of the retail business is seized by the Trust. 
Many stores that pretend to be independent and 
do not fly the Trust flag, are really owned by the 
Trust; you can hardly tell when you are buying of 
the Trust and when you are not. Great, glittering, 
brilliantly lighted stores, cleverly worded advertise- 
ments, specious promises of low prices, attract and 
delude the consumer; It does not seem possible that 
bad goods can come from such Imposing places. 
With much cunning the Trust has brought Into the 
business the Influence of women. Imitating the 
trading-stamp device. It holds forth bribes In the 
shape of coupons that are exchangeable for articles 
of household use, and thus It Induces women to 
urge their husbands to buy at Trust stores. As the 
Trust, by the use of Inferior tobacco, by making 
large purchases, and by robbing the producer, has 
an abnormal margin of profit, it can of course well 
afford these bribes. 

So that here at last Is displayed in the clearest 
colors the exact meaning and results of the Formula 



1 86 LAWLESS WEALTH 

for Wealth-making when that formula has done its 
perfect work. The bonds are issued, the stock is 
floated, the syndicate is enriched, the palace arises. 
And every cent thus represented we furnish: we 
that consume the tobacco, ship the freight, grow 
the crops, eat the beef, hang to the straps of the 
street cars, pay for the bad gas, endure the bad 
service; we upon whose backs Is piled the whole 
vast mass of watered stocks, fictitious bonds, fraud- 
ulent scrip, gambling securities. And the only 
profit obtained by society in all these operations is 
the spectacle of five or six men accumulating great 
fortunes, fortunes beyond computation, fortunes 
for a few comprising the sum of available wealth 
that should be for all. 

Such are the facts. Sorry and stained and 
wretched, in the light of them, looks also this par- 
ticular palace among the golden houses of the for- 
tunate. Built out of the enforced contributions of 
the public, the sweat of the defrauded farmer, the 
blood of the small dealer, what interest has man- 
kind in the mounting millions that it represents? 
Or wherein have we gained from Its existence, we 
whose unexampled patience renders all these things 
possible ? 



CHAPTER XIII 

THE GREAT GAME OF INSURANCE 

One thing that Thomas F. Ryan must quickly 
have learned about the golden city of his dreams has 
impressed itself upon all other men that have tried 
to master the money mart. 

In the golden city is boundless wealth, but the 
vast mass of it is not to be touched, handled, come 
by, nor spun upon the table of the Wall Street 
game. 

At that game the playing is done with counters. 
All are counters — credits, stocks, bonds, notes, ac- 
counts, buildings, railroads. Of tangible gold to 
redeem the counters there is very little. True, the 
banks are enjoined by law to the keeping of cer- 
tain reserves in cash, and, true, so long as these 
reserves endure one may at the banks get cash for 
y his counters; but the law has requirements (stern 
though sometimes violated) about borrowing upon 
counters, the operation is not easy, and the propor- 

187 



:|'t 



h 



1 88 LAWLESS WEALTH 

tion of cash to counters Is infinitesimal. Yet some- 
times for the greatest and most profitable plays at 
the table great quantities of ready cash are abso- 
lutely necessary. 

Amid the desert sands of counters, counters, 
always counters, flows one stream of actual cash, 
pouring steadily into New York. Day upon day, 
week by week, month after month. It comes In a 
solid. Incessant stream, to fall Into fewer than a 
dozen coffers. To the great insurance companies, 
that Is where It all goes, millions upon millions of 
cash, not counters, paid daily by the policy-holders 
all about the world. The three great Insurance 
companies have total assets of approximately a bil- 
lion dollars, and this is the only free, large, and 
unrestricted source of ready money in the country. 

Hence the madness of the struggle to gain con- 
trol of these golden streams, for which men have 
risked the penitentiary and their souls. Year after 
year, as the business of the Insurance companies 
grew and the golden stream rolled, the utility of 
the assets increased until hardly any new industrial 
enterprise could be floated without recourse to the 
policy-holder's money. Naturally, then, the money 
kings were impelled to get possession of the stream 
and to turn it whither they pleased. 



LAWLESS WEALTH 189 

The control of the policy-holder's money was in 
each case vested in the finance committee of the 
insurance company. In each case, also, the finance 
committee of the insurance company was composed 
of the money king and his friends. Hence the 
policy-holder's money could be used at any time to 
further, finance, or float the private schemes and 
ventures of the money king, to the money king's 
profit and the policy-holder's peril. 

This was one use of the golden stream. Inci- 
dentally, there grew up another game with these 
millions, played at a side table and with great gains 
to the players. It consisted of what is known as 
**side syndicates." The substance of the ''side syn- 
dicate" is a transaction not to be deemed honest 
merely because it happened to be developed since 
the framing of the criminal code. The men that 
controlled the insurance companies were also inter- 
ested secretly in certain firms or companies whose 
business was to deal in securities. As these men 
directed absolutely the operations of the finance 
committees, their practice was to have their firms 
buy securities at a low rate and immediately, 
I through the finance committees, sell them at a very 
high rate to the insurance companies. In this easy 



I90 LAWLESS WEALTH 

manner it was possible to make two or three mil- 
lions in a morning without the least effort or risk. 

Much more than chance or opportunity was in- 
volved in these operations. The thing was sys- 
tematized, it was reduced to a faultless process in 
which the financiers held every advantage. The 
very spirit of the times played into their hands, for 
the rapid development of industrial enterprises 
through the country created an imperative demand 
for increased capital, and the supplies- of available 
capital came to be almost exclusively with these 
finance committees. 

Suppose, for instance, some great industrial en- 
terprise in the booming Middle West desired to 
increase its facilities and extend its operations. It 
issued securities to the desired amount, and to dis- 
pose of them came straightway to New York — the 
financial capital of the Western World and sup- 
posedly the only source of available cash. But 
once here in this financial capital the supporters 
of the Western enterprise found themselves con- 
fronting a strange difficulty. As a rule only a few, 
a very few, specified firms or bond companies would 
handle their issue. Of these there was a regular 
list perfectly well known. When after negotia- 
tion one of these firms agreed to undertake the 






LAWLESS WEALTH 191 

issue it was always at a price distinctly below the 
price that in view of the state of its market might 
reasonably have been expected. But the firm that 
purchased the bonds did not keep them. It trans- 
ferred them at a much greater price to an insurance 
company whose finance committee had probably re^ 
fused to take the same bonds at a lower price from 
the company that issued them. 

The real point of this transaction was that the 
gentlemen that controlled the finance committee 
also controlled the firm that handled the bonds. 
In other w^ords, what happened was that in their 
own capacity they bought the bonds at 80 and then 
in their capacity as finance committee sold them to 
the insurance company at 90, thereby safely and 
rapidly drawing the money from the policy-holders* 
pockets into their own. 

The absolute security of this artless method of 
getting It was enhanced by the conditions of the 
insurance business. Nobody outside of a little 
coterie in each of the great companies had any idea 
of the true nature of the business transacted. The 
policy-holder knew that the company was perfectly 
solvent, which was true ; that it had enormous and 
increasing assets and reserves ; that in the event of 
his death his^ heirs were absolutely certain to re- 



192 LAWLESS WEALTH 

ceive the amount of his policy. What he did not 
know was that he was not deriving his share of the 
company's prosperity; that he was paying more for 
his insurance than the conditions warranted; and 
that from lapsed policies, fortunate investments and 
the inevitable accumulative force of great capital 
there were gathered huge sums that should have 
been applied to the reduction of his premiums, but 
were in fact applied for the private advantage of 
the gentlemen that managed the company. 

What was still more curious in this strange chap- 
ter in the history of human credulity was that in 
most instances these same gentlemen had no pos- 
sible rights over the money they manipulated, but 
merely represented the policy-holders tO' whom 
alone the money belonged. This Is, of course, 
morally and essentially true in the case of every 
Insurance company that invites men to entrust it 
with their funds ; but It was peculiarly and strikingly 
true in the case of two of the great companies, for 
these were organized strictly upon the mutual plan 
and had no owners except the policy-holders. 

For years upon years the money of these policy- 
holders was squandered and used for the personal 
benefit of the men that managed it ; It was wasted 
In Idle attempts to make surpassing showings of new 



I 



LAWLESS WEALTH 193 

business acquired; it was wasted on dinners, ban- 
quets and the bribery of legislatures and politicians ; 
it was wasted in small varieties of *'graft" and in 
great. 

Meantime the patient policy-holder continued to 
know naught about the Important subject of his life 
insurance except that his premiums remained the 
same, year after year, and that the business assets 
and resources of his company steadily mounted. 
But all unknown to him there were mounting also 
the private fortunes of the manipulators made from 
the patient policy-holders' assets. 

Shall we remind ourselves of what happened 
next? One of these merry gentlemen gave a din- 
ner (with the policy-holders' assets) to a French 
actress. The patient policy-holder took note of the 
fact. Some of the merry gentlemen began to quar- 
rel among themselves over the criticisms that fol- 
lowed and to reveal in their quarreling the 
exact nature of the profits they were drawing from 
the patient policy-holder. The patient policy- 
holder reached the end of a patience that the finan- 
[ cial world confidently believed had no limit. He 
began to demand his own. A committee was ap- 
pointed by the State Senate to investigate these mat- 
ters. Scratching with anxious care to disturb only 



194 LAWLESS WEALTH 

the surface and avoiding all the most Important! 
matters, this committee nevertheless disclosed a 
state of things that struck the entire country breath- 
less, for through all the fog and verbiage there ap- 
peared the fact that from the systematic and in- 
cessant plucking of the patient policy-holder year 
after year the gentlemen were feathering their 
nests. 

In other words, as so often happens In modern 
business, it appeared that insurance was only a blind 
for other and more profitable transactions, just as 
carrying passengers In Chicago was a blind for the 
stock juggling of Mr. Yerkes, and the State Trust 
Company was a blind for office-boy loans. 

This Is the game, as to a certain degree it was 
revealed by the insurance investigation of 1905, 
which we have all happily forgotten. It went on 
for years, It Is going on now, it will always go on 
until we come to our senses In regard to the conduct 
of our insurance business. 

The Standard Oil Company^s able financiers had 
long been interested In the insurance business as 
thus carried on In New York. So had been Mr. Mor- 
gan. Mr. Ryan closely fo»llowed Mr. Morgan's 
course, and frequently came In to share the pro- 
ceeds of the Morgan operations. Mr. Rogers con- 



LAWLESS WEALTH 195 

trolled the Mutual, Mr. Morgan controlled the 
New York Life, and other colossal interests ma- 
nipulated the Equitable, all to the same purpose of 
catching the golden stream and sending it where 
It would do the most good — for the personal for- 
tunes of the manipulators. 

No man had more schemes that needed financing 
than Mr. Ryan; his vast and complicated enter- 
prises in traction, tobacco, railroads, mines, and 
the Congo, insistently demanded capital. There 
were the insurance assets as the great available 
source of ready capital, and Mr. Morgan and Mr. 
Rogers were in chief control of the supplies. But 
the three big insurance companies were not the only 

I insurance companies in New York; there* were oth- 
ers, not so conspicuous, but with some share in the 
golden stream. In January, 1905, Wall Street was 
deeply interested to learn that in the preceding No- 

\ vember Mr. Ryan had quietly secured control of 
the Washington Life-insurance Company and was 
then engaged in reorganizing it on a plan of his 
own. It was in a way a small concern, with a capi- 
tal stock of only $125,000, which Mr. Ryan (quite 
consistently) increased to $500,000; but It had as- 
sets of $17,000,000, and there was presently reason 
to believe that these were not without their uses. 



196 LAWLESS WEALTH 

Mr. Ryan brought over Mr. John Tatlock to 
be president of his reorganized company. Mr. Tat- 
lock had been for many years an actuary of the 
Mutual Life, and secured leave of absence to take 
his new position — a fact that shows the ramifica- 
tions of the ties that firmly bind together the inter- 
ests of the dominating forces in o^r affairs. Mr. 
Ryan's influence in the Mutual was secured through 
the Morton Trust Company, which he owns, and 
which is and long has been one of the side opera- 
tors for the great insurance company. 

Mr. Tatlock was a witness before the Armstrong 
investigating committee in December, 1905, and, 
examined by Mr. Hughes, he gave some extremely 
interesting testimony. It appears that when Mr. 
Ryan took control of the* company in November, 
1904, it had $453,000 of its assets invested in se- 
curities and $6,300,000 in real estate. From Janu- 
ary I, 1905, to the time when the witness was 
testifying, $4,000,000 of the assets had been in- 
vested in securities, and the real-estate investments 
had been reduced by $2,000,000, some of the loans 
on real estate being called — presumably to effect 
the investments in securities. Mr. Tatlock said that 
among the securities the company had bought were ; 

American Tobacco bonds. 



LAWLESS WEALTH 197 

Seaboard Air Line bonds. 

'Atlantic Coast Line bonds. 

Second Avenue Railroad bonds. 

iWestchester Lighting Company bonds. 

Brooklyn City Railroad bonds. 

American Tobacco stock. 

All these are enterprises of the Whitney-Ryan 
syndicate and its allies. 

These securities were purchased through the firm 
of Ryan & Kelly, of which Mr. Ryan's son was the 
senior member. 

Mr. Hughes also brought out the fact that the 
auditing committee of the insurance company had 
taken alarm at some of these purchases of the 
finance committee, and had said that the State Suh 
perlntendent of Insurance would not approve of 
them. It advised that no more securities of the 
kind be purchased, and thereupon some of the se- 
curities had been sold— also through Ryan & Kelly. 

The finance committee of the company, which 
directed the handling of the assets, was composed 
of Mr. Ryan, Mr. Tatlock, and Mr. Levi P. 
Morton. 

Mr. Tatlock also admitted that, since the reor- 
ganization of the company, it had become a de- 
positor at the National Bank of Commerce of New 



198 LAWLESS WEALTH 

York, a Ryan concern, and that its account with 
Mr. Ryan's Morton Trust Company had been dou- 
bled. Which will sufficiently indicate the channels 
that the assets were taking. 

Further, Mr. Tatlock admitted that, since th'e 
company's reorganization, it had participated in six 
of these '*side syndicate" deals, although the com- 
pany had never before been engaged in such enter- 
prises. It appeared further that these syndicates 
were in the kind of industrial securities that the au- 
diting committee had condemned. When Mr. 
Hughes called Mr. Tatlock's attention to this sin- 
gular fact, Mr. Tatlock merely said : 

**I had my instructions." 

So the situation seems to be reasonably clear so 
far as the Washington Life is concerned. 

But in the mean time Mr. Ryan had startled the 
entire world by another move of far greater mag- 
nitude. On June 15, 1905, it was announced that 
the months of scandal and bickering in the great 
Equitable Company had come to an end because 
Mr. Ryan had bought of Mr. James Hazen Hyde 
the controlling interest (502 shares) in the Equi- 
table stock that Mr. Hyde had inherited from his 
father. It had been supposed that the elder Hyde 
had so tied up this stock that its sale was Impos- 



LAWLESS WEALTH 199 

sible. Repeatedly the younger Hyde had refused 
on any terms to part with it. Only a few days be- 
fore he had rejected an offer for It, from Mr. E. H. 
Harrlman, of $5,000,000. And now he had sold 
it to Mr. Ryan for $2,500,000. So ran the report; 
Mr. Hyde would not deny It. The Street was 
amazed. What had Induced Mr. Hyde to change 
his mind In this extraordinary fashion? There 
were a thousand surmises. Mr. Ryan was sup- 
posed to have hypnotized the young man, or to have 
obtained over him some sinister control; but the 
silent Ryan heard all and gave no sign. 

Only one thing seemed perfectly certain: the 
Equitable and Its vast assets, its steady stream of 
gold. Its huge power upon business, the drag of Its 
millions, and their bewildering possibilities of profit- 
making, lay In Mr. Ryan's hands. In the other 

I companies the policy-holders may some day weary 

J of furnishing money for the Wall Street game and 
may kick over the table at which the Standard Oil 

j g^ng and Mr. Morgan now sit at ease. In the 
Equitable (since it Is a stock company) there can 
hardly be a revolt. Mr. Ryan controls it, he has it 
in his vest-pocket, he can do with it as he may 

j please, the ''side syndicates" may produce untold 



200 LAWLESS WEALTH 

millions, the assets may be used in any undesirable 
way — the policy-holders will have little to say."^ 

When he w^as a witness before the Armstrong 
Committee, Mr. Ryan was asked what were the 
motives that induced him to buy the Equitable. Mr. 
Hughes put the question. 

Mr. Ryan replied that his motives were purely 
philanthropic. I regret to say that on the publica- 
tion of this reply, Wall Street, which ordinarily has 
no sense of humor, gave vent to cynic laughter, 
possibly thereby doing injustice to Mr. Ryan. 

*'I thought," he said, ''I was doing a great pub- 
lic service, and preventing what I feared would be 

*This remains practically true in spite of what is called the 
"mutualization" of the company by which the policy-holders are 
allowed to name a majority of the directors. The easy manner 
in which the gentlemen behind the scene can control the actual 
choice of any such body was abundantly shown in the so-called 
"elections" held in the Mutual and New York companies in the 
autumn of 1906. The policy-holders were supposed in these 
elections to name not only a majority but all of the directors or 
trustees, and the result was that in each case the board selected 
was composed entirely of friends or creatures of the gentlemen 
behind the scenes. The device of allowing the Equitable 
policy-holders to name a majority of the directors is therefore 
very shallow. The actual control of these companies is just as 
much in the hands of the money kings as it ever was. No 
matter how much the policy-holders may be allowed to play at 
casting votes, the control will remain with the money kings until 
we weary at last of allowing the momentous matter of life in- 
surance to be the plaything of private greed. 



LAWLESS WEALTH 201 

the most tremendous panic this country has ever 
seen, if the Equitable Life-Assurance Society had 
gone into the hands of a receiver." 

The Equitable was then carrying $6,500,000 of 
Mr. Ryan's Metropolitan Street-Railway stock. At 
the recollection of this fact Wall Street laughed 
again. 

And yet, I think that when Mr. Ryan said that 
he had bought Mr. Hyde's interest in the Equi- 
table, he must have used the word in a sense not 
recognized by lexicographers, because, according to 
expert authority, he had not bought it at all. How 
easily we are all fooled! The mystery of Mr. 
Hyde's sale-for $2,500,000 of stock worth $7,500,- 
000 was really no mystery. Mr. Ryan knew well 
enough the potentialities of the Equitable assets; 
Mr. Hyde probably perceived that there would be 
bickering so long as he remained ostensibly in con- 
trol. Hence Mr. Ryan easily induced him to lease 
the stock, and that is the arrangement now in force. 
Mr. Hyde remains the owner. 

But for the purposes of the game a lease of the 
stock is as good as a purchase, and it is pleasing 
to know that v/ith Mr. Ryan in control of the Equi- 
table, the Standard Oil gang of the Mutual, and 
Mr. Morgan of the New York Life, the good old 



202 LAWLESS WEALTH 

game does prosper and go merrily, and no mistake. 
Every day you can hear in Wall Street the clink 
of the policy-holders' dollars as they roll over the 
table, making profits for the deserving ''System," 
and for others in authority over us, just as if the 
names of Armstrong and Hughes had never been 
heard in this world. Wonderful are the achieve- 
ments of a legislative investigation ! The net re- 
sults of our virtuous indignation about the insur- 
ance scandals are a few men worried to death, two 
or three in exile, two obscure persons sentenced to 
prison, and the game exactly as before. 

Great thing, this spasmodic indignation of ours. 

Mr. Ryan chose for president of his share in 
the game Secretary of the Navy Paul Morton, for- 
merly of the Atchison, Topeka & Santa Fe Rail- 
road, and involved in very serious charges of hav- 
ing violated the anti-rebate law. There is no rea- 
son to suppose that Mr. Morton and Mr. Elihu 
Root ever compare notes as to their respective ca- 
reers, but such a comparison, now that both are 
working for Mr. Ryan, might prove mighty, inter- 
esting. 



CHAPTER XIV 

THE WRECK OF A GREAT PROPERTY 

On October 8, 1907, a quiet little man was sit- 
ting in the witness-chair before the New York Pub- 
lic Service Commission, telling in a quiet little way 
some of the historic secrets of the Ryan- Whitney 
syndicate. 

Much of his testimony was well worth the 
world's serious attention. 

He admitted an instance of his own knowledge 
in which the syndicate had possessed itself of more 
than half a million dollars of the Metropolitan's 
money. How ? Well, there was a so-called com- 
pany with a so-called franchise to operate a so- 
called railroad between Wall Street Ferry and Cort- 
landt Street Ferry. Mr. Anthony N. Brady, the 
quiet little witness, owned this precious device. He 
said it cost him $200,000. Under the coercion of 
the syndicate, he sold it to the Metropolitan Se- 
curities Company, acting for the Metropolitan 

203 



204 LAWLESS WEALTH 

Street-Railway Company of New York, then the 
name of the street railroads amalgamated by the 
syndicate. He received a check for $965,607.19. 
Of this he retained v$250,ooo. Then by agreement 
he gave of the remainder, $11 1,652.27 to Thomas 
Fortune Ryan, $111,652.78 to William C. Whit- 
ney, $111,652.78 to P. A. B. Widener, $111,- 
652.78 to Thomas F. Dolan, $111,652.78 to W. 
L. Elkins. 

So here was a plain revelation of where some of 
the gentlemen had gotten It. 

Every person that heard this cool recital, nearly 
every person that the next day read of It, was as- 
tounded. The whole country seemed toi receive a 
kind of electric shock. Yet the really amazing thing 
was that there should have been any amazement. 
Any one that cared to know, any public prosecutor, 
for instance, or any State officer or newspaper ed- 
itor, could have found out long ago-, and with the 
greatest ease, not only the whole story of the Wall 
and Cortlandt streets railroad deal, but other mat- 
ters, compared with which the Wall and Cortlandt 
streets railroad deal was mere child's play — in the 
way of loot. 

As the evisceration of the Metropolitan Com- 
pany was the crowning triumph of the syndicate's 



LAWLESS WEALTH 205 

achievements, and typical of all, and as it, more- 
over, presents the best possible illustration of ex- 
actly what these achievements mean for the public, 
I purpose here to relate it at length, and without 
comment, as the most instructive chapter in the his^ 
tory of modern finance. 

On October 8, 1907, Judge Lacombe, in the 
United States Circuit Court, acting on a petition 
of certain stockholders, appointed receivers for 
the New York City Railway Company, which 
meant the Interurban Street-Railway Company, 
which meant the Metropolitan Street-Railway 
Company, which meant the vast system of surface 
railroads amalgamated, unified, and controlled by 
the Ryan- Whitney syndicate. 

Ordinarily the appointment of a receiver for a 
property has only one meaning. It means that the 
property is depleted, impaired, unable to earn its 
interest charges, and on the verge of bankruptcy. 
But this great traction system of New York, this 
wonderful money-earner, this inexhaustible hopper 
into which so many thousands of people daily pour 
their nickels, this concern once regarded as the Gib- 
raltar of traction companies, whose stock was once 
quoted at 269, how did it fall into a depleted and 
bankrupt condition ? Its business has not declined, 



206 



LAWLESS WEALTH 



but increased ; its expenses have not multiplied, but 
relatively diminished. It transports passengers for 
a five-cent fare each, and the average cost of trans- 
porting each passenger is two cents or less. What 
has become of the other three cents ? 

This Is the question on which the whole subject 
revolves. Here is the answer to it : 

When the syndicate first came into the New York 
field with the purchase of the old Broadway line, 
about twenty separate companies possessed the 
street-railroad business of the city. Eight main 
trunk lines ran north and south, or lengthwise of 
Manhattan Island; twelve or thirteen smaller lines 
crossed the city east and west. These, one after 
another, and year after year, the syndicate ab- 
sorbed. Its impelling reason was then announced 
to be a desire to unify and improve the system. 
There is ground now to believe that the real motive 
was very different. Every absorption was accom- 
panied by a new issue of securities, in the manipula- 
tion and disposal of which lay enormous profits. 
Sometimes the acquisition was by lease, and in such 
cases the stockholders of the added lines were in- 
duced to favor the lease because of the great divi- 
dends to be guaranteed on their stock, seven, eight, 
even ten per cent. Sometimes the absorption was 



LAWLESS WEALTH 207 

by purchase (so called) , the operation being merely 
the application of Mr. Yerkes's original Formula, 
or, as it has since been called, the endless chain. 
That is to say, having possession of one road, the 
syndicate issued more securities upon it, and with 
these securities purchased another road, with which 
it repeated the simple operation. 

But here some things are to be noted particularly. 
First, in certain instances, the syndicate did not 
merely buy the road in the name of the Metropoli- 
tan and directly from the company that owned the 
property. The syndicate, acting for itself, pur- 
chased the road at a low price and then sold it at a 
very high price from itself as the syndicate to the 
Metropolitan Company, thus securing very great 
profits for itself, but loading the Metropolitan with 
a further weight of securities. Thus, the syndicate 
bought the old Thirt\^-fourth Street Railroad — 
about one-half mile in length, value about $100,- 
000 — issued upon it $2,000,000 of stocks and 
bonds, and compelled the Metropolitan to purchase 
the securities at par. In the same way it secured 
the Twenty-eighth and Twenty-ninth Street lines 
— value about $250,000 — issued upon them $3,- 
000,000 of securities, and then compelled the Met- 
ropolitan to purchase these securities also at par. 



2o8 LAWLESS WEALTH 

On these two transactions the syndicate cleared, 
without Investment, and without effort, $4,650,000, 
and increased the capitalization $5,000,000. 

Second, it Is to be noted that all the roads ac- 
quired, whether by lease or by this system of pur- 
chase through the syndicate, were already heavily 
overcapitalized, and their acquisition was made the 
occasion for still further stock issues, so that what 
was bad anyway was made much worse, and the 
whole Metropolitan system began to be loaded with 
securities far beyond the support of Its earning pow- 
er. In some Instances, the roads thus added at so 
great an expense were not profitable enterprises. 
Thus the Fulton Street road, which cost the Met- 
ropolitan $2,000,000, loses $25,000 a year, the 
Twenty-eighth and Twenty-ninth Street lines have 
never paid their operating expenses, and others are 
of a like nature. 

The question that at once arises Is why anyone 
should desire to Injure one's own possessions. 

The answer lies In the fact that in all of these 
operations the real profit has been, not in the oper- 
ating of the property, but in the manipulating of the 
securities. Dividends were always a trifling thing 
compared with these profits, and the success of ma- 
nipulating depended in no way upon the physical 



LAWLESS WEALTH 209 

condition of the enterprise. It was practically as 
easy to float bonds on worthless old scrap-iron as 
upon a well-ordered and sound railroad. To the 
public mind a magical charm seemed to surround 
the Metropolitan. Whatever it had to offer must 
have value, for was it not the greatest street rail- 
road in the w^orld, with the most brilliant and cer- 
tain future ? Mr. Yerkes had made his millions by 
taking advantage of a similar situation in Chicago ; 
other expert manipulators had similarly made mil- 
lions elsewhere. Dividends ! What were the slow 
and despised process of the dividend compared with 
the easy strokes of bond issuing that in a day gath- 
ered a monstrous fortune ? 

In the case of the Metropolitan and the syndi- 
cate there was also another still more stupendous 
source of gain, now to be explained. 

In a foregoing chapter I mentioned the fact that 
from one operation in the securities of one subsidi- 
ary line, the Houston, West Street & Pavonia Fer- 
ry, the syndicate cleared $6,000,000. This was 
the manner of that transaction : 

The Houston, West Street & Pavonia Ferry 
Railroad Company (so called) operated some cross- 
town and Important East-Side lines. On October 
I, 1890, It Issued $6,000,000 of second-mortgage 



2IO LAWLESS WEALTH 

bonds. On June 17, 1893, the same company ap- 
plied to the State Railroad Commissioners for per- 
mission to issue $6,000,000 of additional stock, for 
which the $6,000,000 of bonds issued in 1890 were 
to be exchanged. In the application the statement 
was made under oath that the bonds **had been 
issued and disposed of for sums of money necessary 
for completing, furnishing, or operating the rail- 
roads of your petitioner." 
Please note: 

1. None of the company's railroads had been 
"completed" or ^'furnished" in that time, and the 
paying of operating expenses from the proceeds 
would have been illegal, and would also have shown 
in the company's annual report, which reveals no 
such matter. There were no extensive repairs nor 
alterations upon any of the company's lines. 

2. As a matter of fact, the $6,000,000 of bonds 
had not been used for any such purpose as was al- 
leged, but had been exchanged for Metropolitan 
stock, an illegal transaction. 

3. The bonds were issued October i, 1890. The 
law required that they should be recorded in the 
company's annual report. The company's annual 
reports for 1890, 1891, 1892, 1893, do not men- 
tion them. These reports must be sworn to as cor- 



LAWLESS WEALTH 211 

rect. They were not correct, because the item of 
$6,000,000 of bonds was omitted. Hence the ojffi- 
cers that swore to the reports were guilty of per- 
jury, and, in a State where the laws are enforced, 
would have been sent to jail. 

But here was $6,000,000 of stock issued to take 
up the bonds. Where were the bonds ? Exchanged 
for Metropolitan stock. So that the $6,000,000 
of stock was merely a cover for $6,000,000 of 
bonds that had disappeared. "Who got the 
money?" asked a Wall Street journal, commenting 
dazedly upon this wondrous performance. It might 
well ask. Not the stockholders at large, certainly; 
not the public, not the road. To the doors of the 
syndicate it was traced. Beyond that golden portal 
it vanished. 

Who got the money? 



CHAPTER XV 

THE FATHOMLESS MYSTERIES OF HIGH FINANCE 

But the cream of all these operations of thrift 
grew out of the work of ''changing the motive 
power" of the roads from horse to electric. New 
York City, in its street railroad service, had been 
far behind most other great American communi- 
ties. Electricity, which by 1890 had been intro^ 
duced almost everywhere else, was still unused in 
New York as late as 1893. One reason for this 
was the unconquerable determination of the people 
not to allow their streets to be disfigured with the 
poles necessary for the overhead trolley system, and 
the absence of any other device for car propulsion. 
More than once a street railroad company ap- 
proached the Board of Aldermen with a proposal 
to install the overhead system, but on every such 
occasion the storm of public wrath and the keen 
memory of the Jake Sharp scandal, frightened the 
aldermen from granting the necessary permits. On 



LAWLESS WEALTH 213 

the Broadway, Third Avenue, and another line, the 
cable system, the early dream of William C. Whit- 
ney and Charles P. Shaw (an endless iron rope 
drawn over pulleys in an underground conduit be^ 
tween the tracks) , was substituted for horse-power; 
but this system, while economical, was clumsy, in- 
efficient, and unsatisfactory. 

But meanwhile some Hungarian genius hit upon 
the idea of the underground electric trolley; the 
street railroads of Buda-Pest were operated suc- 
cessfully with this device; and in 1894 the syndi- 
cate adopted it, ostensibly for the entire Metro- 
politan system. 

To put it into operation required the reconstruct- 
ing of tracks and roadbed, the building (in some 
instances) of power houses, and the installing of 
electrical machinery. This is the process to which 
I refer now as ''changing the motive power." 

Among the important north and south roads ac- 
quired by the syndicate was the Second Avenue, 
with tracks from Fulton Ferry to Harlem River, 
and some branches. In 1898 this company issued 
$7,000,000 of bonds, whereof $1,960,000 were de- 
clared to be needed to meet certain obligations, and 
the remainder, $5,040,000, to pay for ''changing 
the motive power" of the entire road. 



214 LAWLESS WEALTH 

Up to the present hour the motive power, has 
been changed on one-half of the road. The rest 
continues to be operated with horses. 

According to the company's reports, the amount 
of money expended in changing the motive power 
and installing electrical equipment (on twelve and 
three-quarters miles in a total of twenty-seven and 
three-quarters) was $1,933,171.47. All of this 
work was done, and all of this money was expended, 
in 1898. Since that date nothing has been done to 
change the motive power on any of the company's 
lines. 

Yet in its report for 1900 the company declares 
that it expended in that year for changing the mo- 
tive power $4,329,390.02, whereas no such sum 
was expended, and no work of changing the motive 
power was done. 

Of the bonds Issued for these improvements, $4,- 
450,000 worth were sold. Of the money thus ob- 
tained, $1,933,171.47 was expended for the pur- 
pose designated when the bonds were issued. The 
difference between the real expenditure and the pre- 
tended expenditure was $2,396,218.55. This sum 
has disappeared. 

Who got the money? 

The report for 1902 of the Thirty- fourth Street 



LAWLESS WEALTH 215 

Railroad (part of the Metropolitan system) shows 
an expenditure of $245,435.63 for laying new rails 
in Thirty-fourth Street, between Lexington Avenue 
and Broadway, 

The reports of the same company for 1903 and 
1904 show an expenditure of $51,347.64 for the 
same purpose, making a total expenditure on this 
account of $296,783.27. 

The exact length of track thus relaid was .48 of 
a mile. The rails used weighed 113 pounds to the 
yard, and cost $36 a ton. To lay .48 of a mile with 
such rails would cost $6,138 for the rails. Hence 
the company's reports would have us believe that 
the remainder of the item, $290,645.27, was spent 
for labor. 

But the labor required consisted of tearing up 
the old rails and laying the new, and the true cost 
of this work was not $290,645.27, but less than 
$15,000. 

How is this known ? Very simply and surely. 

In its report for 1902 the Central Cross-town 
Railroad (at that time an independent concern, 
with its own directorate and management) gave 
the cost of taking up four tracks in Fourteenth 
Street and relaying them with heavier rails as $10,- 
881.29 for the labor. The distance In Fourteenth 



2i6 LAWLESS WEALTH 

Street, from University Place to Seventh Avenue, 
is twenty-three feet shorter than the distance in 
Thirty-fourth Street, from Broadway to Lexington 
Avenue. The rails used in Fourteenth Street 
weighed no pounds to the yard; those used in 
Thirty-fourth Street weighed 113 pounds to the 
yard. Hence it is clear that the cost of the labor 
in these two instances was about the same. There 
was charged on the books of the Thirty-fourth 
Street company an expenditure of $290,645.27 for 
labor; there was actually expended for labor per- 
haps $12,000. A balance of $278,000 seems to 
have disappeared. 

Who got the money? 

In 1902 the syndicate determined to ^^change the 
motive power" on the Thirty-fourth Street line. On 
March nth the chief engineer made a sworn state- 
ment in which he declared the cost of this change on 
this line to be $150,000, including power-house 
equipment and all other expenditures involved. 

On June 30, 1902, three months and nineteen 
days later, the Thirty-fourth Street Railroad re- 
ported the expenditures made up to that date for 
changing the motive power tO' have been $831,- 
224.04. 

The next year it changed more motive power 



LAWLESS PVEALTH 217 

at a cost of $7,789.25, and the next year still more, 
at a cost of $228,970.91, making a grand total of 
$1,067,984.20 for changes in the motive power 
that the chief engineer swore could be effected for 
$150,000. Suppose his figures to have been too 
small by half, there would still remain more than 
$700,000 that disappeared under this item. 

Who got the money? 

On the Twenty-third Street cross-town line 
(North River to East River) the motive power has 
been changed four times in four years, if we are to 
believe the books and the reports. Thus there ap- 
pear the following Items: 



1899 — For changing motive power $1,100,932.52 

1900 — For changing motive power 362,424.38 

1901 — For changing motive power 373,401.64 

1902 — For changing motive power 225,470.74 



Total $2,062,229.28 

Distance, less than two miles ; grade, level ; work, 
easy. 

This surpasses all the records of railroad con- 
struction in this or any other country. According 
to the reports, the work proceeded at the rate of 
half a mile a year, and required four years to com- 
plete. The cost of the work was at the rate of 



2i8 LAWLESS WEALTH 

$1,000,000 a mile, which Is about the cost of boring 
a mountain tunnel. The average cost of surface 
railroad construction and equipment In this country 
Is about $22,000 a mile. In Twenty-third Street 
the work seems to have cost $1,000,000 a mile. 
When the Second Avenue line was rebuilt and the 
motive power was changed, the cost was at the rate 
of $330,000 a mile of double track. Including 
power-houses and equipment. At that rate the act- 
ual cost of changing the motive power In Twenty- 
third Street was about $600,000. There was 
charged for It $2,062,229.28. More than $1,400,- 
000 seems to have disappeared under this Item. 

Who got the money ? 

One of the cross-town lines acquired by the Met- 
ropolitan was called the Central Park, North & 
East River Railroad. 

In the report of the State Railroad Commission- 
ers for 1900 this company Is charged with the cost 
of changing the motive power on Its lines In First 
Avenue, from Thirty-fourth Street to Forty-second 
Street. In the report for 1901 there appears an- 
other Item for the same charge, and In the report 
for 1902 still another Item for the same charge. 
It appears, however, that this work had already; 
been done and paid for by another of the subsidiary 



LAWLESS WEALTH 219 

companies of the Metropolitan. The amounts that 
thus seem to have been wrongfully charged total 
$1,500,000. 

Who got the money? 

The book-keeping of the whole establishment 
seems to have been of the most extraordinary na- 
ture, and well deserving judicial Inquiry. *'Man is 
a cooking animal," says Charles Reade; ^'bankrupt 
man especially." If there has not been some fine 
culinary work in the kitchens of the Metropolitan, 
all the odors thence wafted are very deceptive. For 
instance, in the case of this same Central Park, 
North & East River Railroad here is a matter that 
seems plainly to indicate a most undesirable kind of 
cooking. 

In the report of 1902 this company charged for 
the expenses of Engineering and Superintendence 
$322,340.45. 

Now the total of the same expenses for the few 
years from 1899 to 1902 had been $341,731.39. 

In those years the company had changed its mo*- 
tlve power (In fact and not merely on paper) over 
a mile and one-half of Its line; that is, in Fifty- 
ninth Street, from First Avenue to Tenth Avenue. 

Taking as a basis the actual and ascertained cost 
of such changes, It appears that the amounts 



220 LAWLESS WEALTH\ 

charged by this company for "Engineering and Suh 
perintendence" alone were almost sufficient to pay 
for the entire work of changing the motive power 
on the one and one-half miles of line, including 
also the cost of equipment. It seems likely that the 
actual cost of '^Engineering and Superintendence" 
was not more than $1,500. 

Some public comment was aroused by this dis- 
crepancy, and in the annual report of the Metro- 
politan, issued June 30, 1903, an attempt was 
made to forestall any further criticism, for there 
appears this item : 

^'Correction of error in 1902, in charging Track 
and Roadway and Electric Line Construction to En- 
gineering and Superintendence, $262,787.90." 

This, of course, shifted the charge from one ac- 
count to another. 

But it did not explain what had become of the 
money. 

Yes, there must certainly be master cooks in the 
Metropolitan kitchen. As observe this further 
specimen of their art: 

The New York Stock Exchange has a rule that 
a company seeking to list new securities must file 
with the Governors a sworn statement of its con- 
dition. 



p 



LAWLESS WEALTH 221 

In May, 1904, the Metropolitan Company de- 
sired to list on the Stock Exchange a fine lot of 
newly watered bonds, fresh, and just out of its pro- 
lific garden. So it filed the required statement. It 
contained one very curious item, to wit : 

'Tourteen thousand shares of Broadway & Sev- 
enth Avenue R. R. stock and National Cable Con- 
struction Company license right and privileges, 
$5,522,015.32." 

Now, of course, these two items had no possible 
right to be amalgamated, because the Broadway & 
Seventh Avenue stock could have no connection 
with the Cable Construction Company's license. But 
beyond even that, here was the curious fact that 
the value of the Cable Construction Company's li- 
cense and privileges was absolutely nothing. These 
things consisted of a permit to build a cable rail- 
road. But a permit to build a cable railroad is 
worth nothing in New York, for the cable as a 
motive power has been long and forever abandoned. 
Hence here was something seemingly dishonest. 

The value of 14,000 shares of Broadway & 
Seventh Avenue stock was at that time about 
$2,800,000. 

It appears, therefore, that the cooks of the Met- 



222 LAWLESS WEALTH 

ropolitan tried to show the assets of the concern 
to be $2,722,000 greater than they really were. 

But these were by no means the only triumphs 
of those capable artists. 

Thus in 1901 the Metropolitan reported this 
item: "Amount due from Lessor Companies June 
30th, 1901, $2,245,598.78." 

The next year, 1902, this item reappears as fol- 
lows: ''Balance due from Lessor Companies June 
30th, 1901, $5,245,598.78." 

In other words, in one year the same item had 
been swollen $3,000,000. In a region wholly given 
up to expert manipulation we shall always expect 
many instances of rapid and abnormal development. 
But no system of manipulation would seem to ac- 
count for an item that one year is $2,245,598.78, 
and the next year becomes exactly $3,000,000 
greater. 

Sometimes the sum that disappeared was small, 
and sometimes it was large, but, large or small, it 
seemed to vanish and leave no trace. 

On August 10, 1898, the Metropolitan Company 
applied for permission to increase its capital stock 
by $15,000,000. The sworn statement of Presi- 
dent Vreeland, accompanying the application, de- 



LAWLESS WEALTH 223 

clared that the money was to be used for these pur- 
poses : 



To redeem $6,000,000 of debenture bonds $6,000,000 

To pay for power-house construction and cars 4,000,000 

To be held in the treasury and used when needed to 
complete the change of motive power on the vari- 
ous railroads owned and operated by the company. 5,000,000 

Total $15,000,000 



The chief engineer accompanied the application 
with an affidavit giving details of the proposed ex- 
penditures, from which it appeared that the Ninety- 
sixth Street power-house would cost, when complet- 
ed, $2,975,580; the Fiftieth Street power-house, 
$600,000; and the new cars, $800,000, or a total 
of $4)375)580. 

On the basis of the chief engineer's figures, there 
would be left from the proceeds of the stock sale 
$4,624,420, and, on the basis of Mr. Vreeland's 
figures, $5,000,000, to complete the change of mc^- 
tive power on the railroads owned and operated by 
the company. 

But on June 28, 1900, the company applied for 
permission to issue still more stock, $7,000,000, and 
in this application President Vreeland said that 
$3,000,000 of the sum would be required to change 



224 LAWLESS WEALTH 

the motive power on the company's own lines as 
distinguished from its leased lines. The chief en- 
gineer again put in his figures, and showed that the 
cost of changing the motive power on these owned 
lines would be $2,867,808. Adding to these the 
expenditures the chief engineer detailed with the 
application of 1898, it appears that the total cost 
of changing the motive power on owned lines and 
on leased lines was $7,243,386. Yet the company's 
report for 1902 declared that there had been ex- 
pended for changing the motive power on owned 
and leased lines $13,310,977.87. The sum of 
$6,067,641.87 seems to have disappeared behind 
this item. 

Who got the money? 

Again, In the last six months of 190 1 the Metro- 
politan Company borrowed $7,240,263.33 for new 
construction, and according to its report It expended 
for this new construction $6,900,494.26. 

But there was no new construction In those six 
months, except what was involved in the changing 
of the motive power on a small part of the leased 
lines. The change of motive power on the com- 
pany's own lines was provided for by the issues of 
additional stock already related. 

Yet the report of the company asserts that In the 



I 



LAJVLESS JVEALTH 21s 

year 1901 there was expended for new construc- 
tion $8,543,736.39, a sum large enough, according 
to the figures of the chief engineer, to pay for chan- 
ging the motive power on fifty-seven miles of rail- 
road. As a matter of fact, for the year the com^ 
pany's actual expenditures upon new construction 
were $2,105,195.10. The sum of $6,438,541.29 
seems to have disappeared behind this item. 
Who got the money ? 



CHAPTER XVI 



THE TRUE FUNCTIONS OF A ^'HOLDING COMPANY^' 



The cases I have cited are mere types ; they have 
been repeated many times and subjected to- some 
variations to suit different conditions, but the fun- 
damental principle has remained the same. Always 
there has been an increase of the load of capitaliza- 
tion under which the enterprise lagged and stag- 

• • • 
gered, and always a part of the securities thus is- 
sued, or a part of the money they represented, mys- 
teriously disappeared. The farmer's boy, in the 
old story, observed that the miller's hogs were very 
fat. You may notice, similarly, that the syndicate 
gentlemen have grown very rich. 

Even in this brief outline of a long and very 
intricate story I ought to- mention two matters that 
stand out conspicuously in the succession of ques- 
tionable transactions. 

Probably no other corporation in this or any oth- 
er country has ever operated under sO' many differ- 

226 



LAWLESS WEALTH 227 

ent names. To follow the concern through its list 
of designations from the old Broadway & Seventh 
Avenue, the names of different subsidiary compa- 
nies that were made to do duty for the whole, the 
Metropolitan Street-Railway Company, Metropoli- 
tan Traction Company, Metropolitan Securities 
Company, Interurban Street-Railway Company, 
New York City Railway Company, the Interbor- 
ough-Metropolitan Company, and the rest, would 
be an unprofitable task; but I desire to note one 
use that has been made of this fugitive and evanes- 
cent nomenclature : 

The Metropolitan Street-Railway Company was 
organized under the laws of the State of New 
York. The Metropolitan Traction Company was 
organized under the laws of the State of New Jer- 
sey. These companies were coexistent, had the 
same amount of capital stock, the same ostensible 
purposes, the same management; but the Metro- 
politan Traction Company, being a New Jersey 
corporation, was not obliged to make public report 
of its transactions. When, therefore, the syndicate 
bought a branch line for $100,000 and sold it for 
$1,000,000, it always sold to the Metropolitan 
Traction Company of New Jersey (where the rec- 
ord of the affair was lost) , and the Metropolitan 



228 LAWLESS WEALTH 

Traction Company of New Jersey sold to the Met- 
ropolitan Street-Railway Company of New York, 
and back of this transaction no investigation could 
go, because it was a transaction between corpora- 
tions of different States, and under our wise system 
this protection to dishonest corporations is absolute 
and perfect. That little fact explains why most of 
such corporations doing business in the State of New 
York are incorporated in New Jersey. The New 
York courts can have almost no control over them, 
there is no reason why the New Jersey courts should 
interfere with them, and thus, to all intents and 
purposes, they are Independent of and superior to 
the law of any State. 

The Metropolitan Traction Company of New 
Jersey seems also to have had another function In 
concealing the disappearance of moneys mysteri- 
ously missing from the Metropolitan Street-Rail- 
way Company of New York. Thus when, in 1898, 
the Metropolitan Street-Railway Company Issued 
$15,000,000 of additional stock, $6,000,000 there- 
of. It will be remembered, was to redeem outstand- 
ing debenture certificates. These debenture certifi- 
cates were Issued in October, 1897, to pay for 
property purchased from the Metropolitan Traction 
Company. 



LAWLESS WEALTR 229 

In September, 1896, the Metropolitan Street- 
Railway Company had Issued, and delivered to the 
Metropolitan Traction Company, $13,500,000 of 
stock, in payment of other properties and securities 
purchased from that company. That is all the in- 
formation made public in regard to these transac- 
tions. What were the properties and securities thus 
acquired ? Nobody knows. The items go down in 
the books, the totals appear in the reports, there is 
no explanation of the entries, and the properties 
and securities are left to public surmise. All we 
know is that the Metropolitan Traction Company, 
owned by the syndicate, had no legitimate function 
in the operating of the street-railroad system of 
New York, that it was used as a clearing-house for 
the secret deals of the syndicate, and that here in 
these two items a total of $19,500,000 of the stock- 
holders' money was paid to it on a bald entry. 

The other matter I should tell relates to the 
Third Avenue Company, which for many years had 
remained independent and outside of the syndicate's 
control. In the early part of 1900 the syndicate 
saw that the time had come when it might possess 
this long-coveted property. The Third Avenue 
owned or controlled a very great trackage, and had 
been one of the most staid and powerful corpora- 



230 LAWLESS WEALTH 

tions of the city. It had changed its motive power, 
about 1892, from horse to cable, and five or six 
years later it changed again from cable to the un- 
derground electric trolley. This latter change, by 
the way, embraces what is to this day one of the 
business mysteries of New York. From time to 
time there were printed in the newspapers hints of 
a remarkable state of affairs concealed in the huge 
work of reconstruction, but no one has ever been 
able to lay hands upon all the threads of the story. 
It seems certain that the work was enormously and 
extravagantly expensive — much more expensive 
than had been planned, and that because of this 
expense the price of Third Avenue stock fell rapidly 
in the market, assisted by recurrent reports of the 
increasing liabilities. More than this, there appears 
reason to believe in some malign interference with 
the operations and welfare of the road. But be- 
yond these deductions there are only the vaguest 
surmises as to what actually occurred. 

The management of the Third Avenue Company 
v/as no longer strong. Mr. Henry Hart, who- had 
been for years the captain of the enterprise, was 
growing old and feeble, and the younger hands on 
the wheel seemed to steer but badly. Observant 
persons saw that the ship was sailing a singularly 



I 

LAWLESS WEALTH 231 

erratic and perilous course. In these conditions 
the price of the stock continued to sag. In two 
or three years it had fallen from 232 to 120, and at 
that point the syndicate thought it might safely be- 
gin to operate. A terrific bear raid was started 
against the stock, an assault most cleverly planned 
and carefully executed, the newspapers being adroit- 
ly tricked into helping. It drove the price from 
120 down to 45, at which figure the syndicate 
I quietly loaded up until it had secured control. By 
a device quite familiar in such operations, the syn- 
, dicate gentlemen had bought while they pretended 
I to sell, and thus had kept the price down to the 
I level whither they had forced it. Whereupon they 
I effected the lease to the Metropolitan of the Third 
Avenue and all its allied lines, and the passing into 
I their hands of practically the entire street-railroad 
I system of Manhattan and the Bronx. 

To pay the floating debt of the Third Avenue 
Company and to provide for change of motive pow- 
er on some of its allied lines, there were now issued 
$35,000,000 of Third Avenue bonds — ^naturally; 
consolidation and reorganization have always been 
the occasion of more water on the flooded lands. 
The floating indebtedness of the company was $22,- 
000,000. This left $13,000,000 for the change 



232 LAWLESS WEALTH 

of motive power. So far the motive power has 
been changed on one and one-quarter miles of the 
allied lines, at an actual cost of possibly $400,000. 
But the remainder, $12,600,000, seems to have dis- 
appeared. 

Who got the money? 

There Is no escape from the conclusion that while 
all these things were going on, the enterprise was 
steadily plunging down the road to insolvency, and 
that the men on the inside knew it while they con- 
tinued to increase the ruinous load of securities. 
For at least the last seven years of its existence 
the dividends paid by the Metropolitan must have 
been unearned. We are now all accustomed more 
or less to exhibitions of cold callousness on the part 
of corporation managers, but I doubt if we have 
known any such exhibitions as those of the Metro- 
politan management. 

For instance, in 1898 the management decided 
to Increase the annual dividend from 5 per cent, 
to 7 per cent. It is now quite apparent that even 
at that time the 5 per cent, dividends were not 
earned, but were being paid out of the vital re- 
sources of the concern, and this fact must have been 
familiar to the men on the inside. Nevertheless, 
they announced a dividend of 7 per cent. At this. 



LAWLESS WEALTH 233 

of course, the price of Metropolitan stock sailed 
upward until it reached 269. At this point the men 
on the inside released a large part of their hold- 
ings, and reaped their great profits on the rise 
they had thus forced. It seems to me that these 
records do not contain anything more extraordinary 
than the forced advance to 269 of the stock of a 
practically bankrupt institution, nor have I ever 
heard of a hardihood more colossal than that of 
the men that put it up, knowing full well the real 
nature of the securities they were juggling, and 
knowing, also, that they themselves were respon- 
sible for the practical ruin of the enterprise. 

The whole thing was utterly impossible; any in- 
spection of the existing conditions would have 
'shown that It was impossible. The lease of the 
Third Avenue line alone was made on terms that 
would have bankrupted a road far more profitable. 
The Third Avenue had been a safely managed 
and solid concern. From the time of its lease to 
the Metropolitan it began to lose more than $1,000 
a day. The dividends guaranteed on the Third 
i\. venue stock when the lease was made were be- 
yond the earning capacity of the road, and every 
I person that knew anything about the street rail- 



i 



234 LAWLESS WEALTH 

road business must from the start have known this 
also. 

Why, then, was such a lease made? 

It was made because the Insiders had depressed 
the price of Third Avenue stock to 45 or there- 
abouts, at which price they had bought heavily un- 
til they secured control. With control, they made 
this Impossible lease. With the news of the lease 
uprose the price of Third Avenue, as well as the 
price of all the Metropolitan stocks, and from 
these advances were made millions of profits for 
the Insiders. 

Since the lease the floating indebtedness of the 
Third Avenue Railroad has been enormously In- 
creased: the road has Issued $1,943,000 of new 
bonds, and it has lost from Its operations about 
$1,000,000 a year. It has borne, meantime, the 
burden of $8,000,000 of guaranteed dividends, 
which, according to the terms of the lease, were 
to be increased with succeeding years. From con- 
ditions like these what in the world could come upon 
that property but a smash ? Thus an enterprise once 
exceptionally solid and profitable has become a piece 
of financial wreckage. A separate receivership and 
the practical obliteration of the stock are threat- 



LAWLESS WEALTH 235 

ened, all because the Inside has been scooped from 
the concern. 

Who got the money? 

Two years later the whole outfit, Metropolitan, 
Third Avenue, and everything else, was leased to 
a new company called thelnterurbanStreet-Railway 
Company. In all these operations the lease Is a 
great matter. It covers up a deal of rottenness, and 
it once more strikes the rock whence flow the unfail- 
ing streams of water wherewith fainting finance Is 
revived. It was so In this case. The Metropoli- 
tan then owed $11,000,000, a condition no longer 
to be concealed ; hence the handy lease, more water, 
more tribute from the public. 

According to the statement of President Vree- 
land, this indebtedness had been Incurred In the pur- 
chase of Third Avenue stock, and one of the rea- 
sons given for the new lease was that funds might 
be provided for the payment of this Indebtedness. 

The facts were that the purchase of Third Ave- 
nue stock had cost $6,400,000, not $11,000,000, 
and that even this $6,400,000 had long before been 
paid. For in 1901 the Metropolitan had Issued 
$7,000,000 of new stock for this purpose, and the 
stock (thanks to an Impressionable public) had been 
sold at a premium^ so that It had realized $10,500,- 



236 LAWLESS WEALTK 

ooo, instead of $7,000,000, and the $6,400,000 
had been paid off, leaving a handsome balance. 

How, then, could there be an indebtedness of 
$11,000,000 ^'incurred In the purchase of Third 
Avenue stock"? 

The company's quarterly balance-sheets, filed 
with the State Railroad Commissioners, sufficiently 
established the startling discrepancy. Kuhn, Loeb 
& Co. were then holding about $6,000,000 of the 
Metropolitan Securities Company stock. The at- 
tention of Mr. Jacob Schiff, a member of the firm, 
was called to the difference between, the statement 
of President Vreeland and the facts as disclosed 
by the balance-sheets. Mr. Schiff went at once 
to Mr. Ryan and made a peremptory demand that 
his firm be instantly relieved of the $6,000,000 of 
Metropolitan Securities stock. Mr. Ryan lost no 
time in complying with the demand. Why, one 
person can guess as well as another. But he cer- 
tainly complied, and on the spot. 

Four years ago Mr. James W. Osborne publicly 
offered to prove in any court of law that there had 
been taken from the Metropolitan by the men on 
the Inside not less than $30,000,000. No opportu- 
nity was ever given to him to make good his asser- 
tion. His challenge was never accepted. But it 



LAWLESS WEALTH 237 

may be interesting now to recall his offer and to 
observe at the same time this table of the sums that 
have disappeared in the various Metropolitan 
transactions : 

Houston Street bonds $6,000,000.00 

"New Construction" Report of 1901 6,438,541.29 

"Leased Line Betterments" Report of 1902 11,014,730.70 

"Track and Roadway G^nstruction" Report of 

1902 3,500,000.00 

Change of Motive Power, General Report of 1902. 6,000,000.00 

Thirty- fourth Street change motive power 700,000.00 

Central Park, North & East River change mo- 
tive power 1,500,000.00 

Twenty-third Street change motive power 1,400,000.00 

Second Avenue change motive power 2,396,218.55 

Third Avenue bonds ._. 12,600,000.00 



Total $51,549,490.54 

So this is the reason why the Metropolitan with 
its enormous revenues, its almost unequaled busi- 
ness, its increased receipts and diminished expenses, 
has gone into the hands of receivers. It is the rea- 
son why, when the receivers took possession, they 
found the entire property in a decayed and dilapi- 
dated condition. It is the reason why there were 
not enough closed cars to equip the road for cold 
weather. It is the reason why the company op- 
erated fewer cars in 1906 than it operated in 1905 
and into them crowded, jammed, and mashed a 






238 LAWLESS WEALTH 

greater number of people. It explains why In the 
rush hours two-thirds of the passengers are obliged 
to hang to straps. It explains what becomes of 
three cents out of every five cents paid for fare. 

The enterprise has been monstrously overloaded 
with capitalization until it has sunk; a great part | 
of its securities have disappeared ; upon the whole 
mass the public is paying the huge interest charges; 
for the sake of the fortunes drawn from these ma- 
nipulations the public must endure the pains of an 
inadequate and uncomfortable service. 

If it is necessary that these gentlemen should have 
It, should we not fare better if we gave them their 
huge fortunes direct from the national treasury and 
hired them to keep their hands off us and our af- 
fairs ? 



ii 



CHAPTER XVII 

THE BRUNT OF THE BURDEN 

Whenever there is unpleasant comment about 
these achievements in finance the financiers invar- 
iably take refuge behind a denunciation of "muck- 
raking" as a menace to the business stability of 
the country. 

In other words here is shown for us another 
glimpse of that beautiful inverted pyramid about 
which we mused as we moved up the avenue of 
palaces at the outset of these chronicles. The pal- 
ace-dwellers not only furnish employment for the 
1,500,000 of the poor and the 2,000,000 of the 
very poor, but they furnish prosperity for all the 
country. If you attack them you are assailing the 
very foundation stone of national commerce. 

Nor can this be a mere jest or pleasantry, as you 
may see for yourself. It was the New York Pub- 
lic Service Com.mission that brought forth the tes- 
timony of Anthony N. Brady concerning the Wall 
and Cortland Street ferries deal. When that story 

239 



240 LAWLESS WEALTH 

was laid bare by the persistent questioning of the 
commission's counsel, there arose a loud wail of 
anguish from some of our best citizens and a de- 
mand that the investigation take another line. Be- 
cause if the commission persisted in unearthing 
these frauds business confidence and business stabil- 
ity would be destroyed and there was no telling 
whither the disaster might run nor what might be 
its consequences. 

So if these gentlemen that do these things are 
right, the true basis of modern business is not in- 
tegrity (as the foolish have supposed) , but the priv- 
ilege to break the law and be immune from punish- 
ment; and the most important thing for us all is 
that there should be water-built palaces and unlim- 
ited loot. 

But suppose we look a little further. Is it really 
necessary that we should endure these things lest 
we plunge down the pit of business disaster? 

I know a man, a typical American flat-dweller, 
a' typical example among the 1,500,000, a good ex- 
ample of those that labor and dream of advancer 
ment and incentive. A good man, he has not a vice 
nor an expensive habit; an industrious man, he has 
toiled faithfully for twenty years in one employ- 
ment; an intelligent man, thoughtful, well-read. 



LAWLESS WEALTH 241 

well-educated. He has a little family; there are 
four in his flat. His two ambitions have been to lay 
by for his family and to win advancement in his 
work. By personal economies and self-denials he 
put aside a few dollars month by month from the > 
close margin of his salary. He kept his nest egg in 
a savings bank. He watched it grow slowly year 
by year. It was not much, but it was something. 
He felt that with more economies and self-denials it 
would some day be almost a competence. 

He watched things and waited. He saw the 
Metropolitan taking shape. He saw it absorbing 
one property after another. The newspapers that 
he read taught him that these consolidations al- 
ways effected economies in operations and enhanced 
the profits. New York was growing rapidly. 
Every year the Metropolitan carried more people ; 
he was sure that every year it would contrive to 
carry still more people. It was a solid, permanent 
institution, having at its head some of our very 
best citizens and most respected leaders in the great 
business world. 

It looked good to him. 

He talked with men whose business it is to know 
the utmost shred of truth about investments. In- 
variably they said that Metropolitan was a grand 



242 LAWLESS WEALTH 

thing. How could it be otherwise? Look at the 
men at the head of it. Look at its business. Look 
at its advantages. Had not the people conferred 
upon it free of charge the exclusive possession of 
their best streets? Did it not have a franchise in 
Broadway for 999 years? Did it not have many 
other franchises safeguarding it for generations to 
come ? Safe ! What could be safer? 

He talked also with other wise men of affairs, 
with bankers and solid business men, and they as- 
sured him that here he could incur no risk. Such 
a business 1 Such a daily harvest of profits ! Such 
a solid enterprise! Who could imagine a disaster 
befalling it? 

He read what in the financial columns seemed 
to bear on the enterprise; he meditated long and 
consulted well. And then he drew out his little sav- 
ings and bought stock of the Metropolitan Street 
Railway Company. 

For five years it paid 5 or 7 per cent, dividends 
and the man often thought how wise he was to 
invest his savings in it. 

It will not pay any more dividends of 7 or 
any other per cent. To all practical intents and 
purposes it is worth to-day the paper it is printed 
on and no more. It never will be worth any more. 



LAWLESS WEALTH 243 

The man's savings have been swept out of ex- 
istence in the fall of the looted structure and he 
will not be able to extract a cent from the ruins. 

That IS one case I know of. A sufferer recount- 
ing in the Cosmopolitan Magazine for January, 
1908, his own similar experience, assures us of an- 
other. Without question there must be thousands 
more. 

Real prosperity is built not upon unlimited op- 
portunity to loot, but upon the purchasing power 
of large masses of people. How about that pur- 
chasing power when such institutions as this are 
operating to sweep away savings ? How about the 
inverted pyramid? How about the support of the 
1,500,000 and the 2,000,000 by the 10,000? 

Also, how about one other thing? How about 
opportunity in this blessed land ? This flat-dweller 
is continually told that if he will but try he can 
scale the precipitous path that leads to competence. 
So he tries, after the manner approved by all the 
sage moralists of optimism. He is thrifty, eco- 
nomical, self-denying, sober, upright, industrious, as 
these eminent authorities tell him he should be. 
He looks up from the ledge where he clings with 
his $1,639 o^ total possessions and he is determined 
to rise as becomes a free and independent Ameri- 



244 LAWLESS WEALTH 

can. He reads the story of this man and that, great 
in the dazzling way of finance. He walks up the 
avenue and sees the beautiful palaces, and the sight 
inspires him with the hope that if he cannot have 
a palace he can at least move a little from that 
ledge where he stands with the 1,500,000. 

So he invests his little savings wrenched by sheer 
self-denial these years upon years from his toiling 
life. He invests them with the captains of industry 
and the captains of industry scoop in his money and 
cast him back upon his ledge. And on this ledge 
you may be sure he will stay the rest of his life. 

Other things would combine to keep him there 
if he had never lost a dollar in the Metropolitan, 
nor In any other scheme of the palace-dwellers. He 
observes that year by year It costs him more to live, 
that his butcher bills grow and his grocer bills in- 
crease and his clothes cost more and the rent of the 
flat goes up, as year by year a larger proportion of 
the products of industry are by means of the 
watered stock and the fraudulent bond diverted to 
the clutches of the palace-dwellers. 

But he finds that his income does not keep pace 
with this enforced increase of expenditures. 

For he must pay for these new Chicago & Alton 
bonds, every one of them; he must pay for these 



LAWLESS WEALTH 245 

amazing feats in financial legerdemain; he must 
pay for the overcapitalized railroads and the loot- 
ing express companies and all the rest of the grand 
old game. 

That being the case — ^what chance has he? 



1 



CHAPTER XVIII 

THE EXPERIENCES OF A WITNESS 

As a general rule the personal side of these mat- 
ters is not worth going into. The issue is not one 
of individuals, but of principles. We do not gen- 
erally care very much who attacks wrong if it but 
be attacked. And we do not care at all what may 
have been his particular experiences in the fight; 
the cause is beyond all that. But here is a story of such 
experiences that I wish to relate in full because it 
has an application too broad and too pertinent to 
be overlooked and because it reveals something of 
the extraordinary power to^ which corporations may 
attain before we are aware. 

The man that turned up the whole story of the 
Metropolitan manipulation is Col. William N. 
Amory of New York City. His investigations con- 
ducted at his own expense paved the way to all we 
know of these performances in profits. 

Col. Amory is an experienced and expert street 

246 



LAWLESS WEALTH 247 

railroad executive. He was for a time Secre- 
tary of the old Third Avenue Railroad Company. 
He understands the mystery behind which is 
cloaked the real significance of railroad reports; he 
knows how to analyze these statements and pluck 
out their true meaning. 

In 1902 Col. Amory was asked by the district 
attorney of New York to furnish some informa- 
tion and memoranda concerning the condition and 
methods of the Metropolitan, which were then bcr 
ginning to attract much attention. He went to 
work on the company's reports. He had long re- 
garded these documents as untrustworthy; he soon 
discovered evidence that the wrong-doing had far 
exceeded his suspicions. 

Then he began to make his discoveries public 
and to draw to them the attention of the district 
attorney. 

Now, the men that in these ways make these 
huge fortunes are not particularly sensitive to pub- 
lic opinion, but they do hate the Idea of going be- 
fore a district attorney. 

The first thing they had to do was to discredit 
Col. Amory. So they resorted to the weapons most 
commonly used against men that disturb privilege 
and attack vested interests. They said he was a 



248 LAWLESS WEALTH 

liar and they tried to discover or manufacture a 
flaw in his private character. 

First they issued a statement branding all his 
revelations as utterly false and libelous and declar- 
ing an intention to punish him to the fullest extent 
of the law. This was duly and fully circulated. 
Then through their press agents they ridiculed him, 
and discovered and magnified faults in his accusa- 
tions, and ignored the real point of his revelations ; 
and by these means they actually created in the 
community a feeling that Col. Amory was untrust- 
worthy and that his attacks on the Metropolitan 
were instigated by personal malice and were untrue, 
a conviction furthered by the refusal of the dis- 
trict attorney to take up the charges that Col. 
Amory had filed with him. One of the officers of 
the Metropolitan, overstepping once the bounds of 
discretion usually pursued by men of his class, made 
an overt statement. He said that Col. Amory was 
a stock-jobber (as well as a liar) and that his at- 
tacks on the Metropolitan had been made to rig the 
stock market and for the purpose of being bought 
ofT. Col. Amory promptly sued this person for 
libel; which had the effect of discouraging 
any further comments of a public nature. But 
the adroit secret campaign went on and Col. 



LAWLESS WEALTH 249 

Amory was soon generally disbelieved and disliked. 
Business men did not care to have anything to 
do with him ; he found the usual avenues of profi- 
table business closed to him. 

Meantime a very singular campaign had been 
going on against his personal character. He was 
watched and followed day and night by detectives. 
A house near his was rented as headquarters for 
the watchers. Every person that called at Col. 
Amory's home was followed when he left and an 
attempt was made to learn his business. Members 
of the family were kept under surveillance when- 
ever they went out. Col. Amory's servants were 
bribed and his telephone wire was tapped. Every 
telegram delivered at his house bore evidence that 
it had been opened and read. 

Presently he discovered that his mail was being 
tampered with and in a way that seemed to leave 
no doubt of collusion on the part of some person 
in the post-office service. 

Now, this is a very remarkable story and reads 

like a page of improbable fiction, and yet it is all 

serious fact and these things really happened In the 

city of New York and In these days of ours — ^as 

I you shall see. 

' Col. Amory's personal attorney was William R. 



250 LAWLESS WEALTH 

Brinkerhoff, No. 68 William Street. On the 
morning of December 4, 1903, Mr. Brinkerhoff 
received at his office in the usual way a letter ad- 
dressed in his care to Col. Amory. This letter 
came from Washington, being postmarked ''Wash- 
ington, D. C, Dec. 3, 1903." 

Mr. Brinkerhoff put the letter into an envelope 
of his own, sealed it and addressed it to Col. Amory 
at his residence. 

This package was delivered at Col. Amory's res- 
idence at 5 o'clock that afternoon. Col. Amory 
opened it and found inside nothing but a sheet of 
white paper. 

Later the postman delivered at Col. Amory's 
house a plain envelope addressed to Mrs. Amory. 
When this was opened it was found to contain the 
letter that had been received at Mr. Brinkerhoff's 
office for Col. Amory. But that letter had been 
opened and was now outside of its original envelope 
— ^which was also enclosed. It was a letter from a 
woman. 

In the next few days Mrs. Amory received 
anonymous letters the plain purpose of which was 
to induce her to proceed against her husband for 
infidelity, for they offered tO' supply her with evi- 
dence, or as the letter said "to produce the girl at 



I 



LAWLESS WEALTH 251 

the slightest sign from you/' Another letter made 
a direct reference to the communication that Mr. 
Brinkerhoff had forwarded and to its contents. 
Those annoyances continued, while the close watch 
kept upon Mrs. Amory's movements justified the 
belief that she was expected to consult a lawyer 
with intent to secure a divorce. On May 4th Mrs. 
Amory received an exact duplicate of the Washing- 
ton letter of December 3d, even the cancellation 
mark on the postage stamp being most cleverly imi- 
tated In India-Ink. Accompanying this was a letter 
signed '^M. R.," urging Mrs. Amory to Investigate 
her husband's actions. 

Col. Amory now made a series of tests to de- 
termine absolutely whether the mails were being 
tampered with. He found that seals were no pro- 
tection to letters addressed to him and that even 
registered letters were opened en route. He also 
discovered that whenever he or one of his family 
mailed a letter In a street letter box some one im- ' 
mediately appeared and put into the box a yellow 
envelope of a peculiar design. He learned from 
a post-office Inspector to whom he complained of 
these things that post-office detectives used these 
yellow envelopes to indicate the posting of a letter 
by a suspected person that they were watching. 



252 LAWLESS WEALTH 

Hence it was obvious that these envelopes were 
now being used to indicate to someone in the postal 
service the position of a letter from Col. Amory. 

These annoyances continued about two years. 
When Col. Amory published an account of them 
the public received the story with utter incredulity. 
What! Detectives and spies opening letters and 
tampering with the mails? In this day? Impos- 
sible! The man must be mad or dreaming. So 
people said, and Col. Amory suffered still further 
in his standing and his charges against the Metro- 
politan seemed lighter than ever. 

And yet in both matters he was destinecl to have 
a signal vindication. When the Public Service 
Commission took up the testimony of Brady con- 
cerning the Wall and Cortland Street ferries line, it 
struck upon the identical thing that Col. Amory 
had from the first insisted was the practice of the 
Metropolitan insiders and found ample reason to 
believe that all his statements pertaining thereto 
were correct. And a little later the man that in the 
Metropolitan service has charge of such pleasant 
matters admitted on the stand that Col. Amory's 
story about the detectives was equally correct. 

For this work the funds belonging to the Met- 
ropolitan stockholders had been used. The cost 



LAWLESS WEALTH 253 

was charged to the same account as the expenses of 
the Civic Federation's Committee, which went 
abroad (at the instigation of the public utility cor- 
porations) and reported Municipal Ownership in 
Europe to be a failure. 

Perhaps the defrauded stockholder that now con- 
templates the destruction of his holdings under the 
reorganization that will follow the receivership 
may be consoled to learn thus definitely what has 
become of a part of his money. 

As to the tampering with the mails and the ap- 
parent collusion in the post-office service, I do not 
pretend to know the exact methods by which such 
things can be brought about. Only I do know that 
this is not the first time persons concerned in these 
events have been able to exert some influence over 
the operations of Government. 

To see how fortunate they have been In this re- 
gard it Is only necessary tO' revert for a moment to 
the story of the State Trust Company. 



CHAPTER XIX 

SIDE-LIGHTS ON CIVILIZATION IN A GREAT CITY 

Out West, and in other regions to which we in 
the metropolis are apt to refer at times with a fat 
and complacent superiority, a street-car drawn with 
horses has long been a curiosity for antiquarians, a 
strange relic of dead ages, a reminiscence of the 
times before electricity was heard of, when men 
lived in sod houses and wore coonskin shirts. 

Is it not strange then that in New York City 
there should still be miles upon miles of street-rail- 
road operated exactly as street-railroads were op- 
erated sixty years ago and with about the same cars 
— and horses? Yet such is the fact. The people 
of a thousand small towns on the prairies or in the 
mountains can ride in swiftly moving trolley-cars; 
the people of a large part of New York City are 
condemned to antique rattle-traps of our great- 
grandfathers. Of the street-railroad mileage that 
in the State of New York is still operated with 

254 



LAWLESS WEALTH 255 

horse-power about ninety per cent, lies in the city 
the largest and haughtiest on this continent and al- 
most the largest in the world. 

For this extraordinary fact try to imagine if you 
can one other reason except that the money that 
should have gone to modernizing these railroads 
has been swallowed up in interest charges and divi- 
dends on watered stocks and bonds; try to im- 
agine, if you can, one other reason why the public 
must bear the burden of this outworn and inade- 
quate equipment. 

One of these New York City lines that still 
cling to the methods of medievalism is the line that 
runs eastward In Twenty-eighth Street and west- 
ward in Twenty-ninth, and standing at the corner 
of Madison Avenue and Twenty-eighth Street one 
afternoon last winter this archaic relic afforded me 
a very strange and I think an Instructive spectacle. 

There was beginning a howling blizzard from 
the northwest. Very likely you know or can Im- 
agine how the wind tears through the east and west 
streets when that kind of affliction descends upon 
us. The snow drove heavily and as If shot from a 
gun. There came along the street a perfect old 
Noah's ark of a car, battered, scratched, visibly 



256 LAWLESS WEALTH 

shaking as If with palsy, and crowded to the last 
inch of Its capacity. Men and women stood in 
the aisle crushed so tightly one marveled they could 
breathe, the platforms were full, men stood upon 
the steps. At the back of and outside the rear plat- 
form ran a little rail crosswise of the car and upon 
this stood a crowd of shivering male bipeds, cling- 
ing desperately with hands and feet. A more for- 
lorn and wretched lot I have never seen. The wind 
hurled the snow into the faces and ears and down 
the necks of the people on the platform, who were 
so closely wedged together they could lift no hand 
to wipe away the chilly slush. Icy drops fell from 
the eaves of the roof upon them ; the wind buffeted 
them cruelly. In front two weary and dispirited 
horses tugged at the monstrous load, and upon the 
worn-out track the car lurched and shook and rum- 
bled. 

At Madison Avenue two or three women and 
a man had been standing in the whirling snow wait- 
ing for this car. They signaled for it to stop. The 
driver as he went by shot out a lip at them and 
grinned expressively. He did not stop. The 
women and the man went back in silence to the side- 
walk and resumed their waiting in the whirling 



LAWLESS WEALTH 2 si 

snow. They were New Yorkers ; they were trained 
to this sort of thing.* 

One of the women carried a great bundle ; some- 
body's washing, I suppose. Her hands were bare 
and with the cold had turned a livid blue. She 
shifted her bundle and tried in her shawl to warm 
the disengaged hand. She was quite elderly; the 
snow that clung to her hair seemed of the same 
color. She stamped her feet on the ground to keep 
them from freezing. A closed automobile whizzed 
by filled with comfortable people. The old woman 
leaped back that the machine should not run over 
her half-frozen feet. The chauffeur looked down 
and laughed. 

When I retuirned to my room I picked up a de- 
fense (written by an eminent authority) of the 
practice of stock-watering. Somehow the argu- 
ments did not ring very true. I kept on seeing that 
car and that old woman. 

But let us be perfectly fair. This is the price of 
stock-watering, but the men that water the stocks 
are not without a semblance of reason and plaus- 
ibility on their side, nor is there one thing in all the 

*A very able Kansas City editor, writing once about such 
matters, termed us *'the most thoroughly 'subjugated people on 
earth." There are times and occasions when, to the observer, 
that phrase will recur as eminently apt and just. 



258 LAWLESS WEALTH 

operations we have described for which a pretext 
has not been found both in economics and in morals. 
So strange are the operations of the human mind || 
that without a doubt the practitioners of these 
methods (and many other persons) have long ago 
persuaded themselves that to make money in these 
ways is fair and right and ought not to be attacked 
lest the foundations of business stability be threat- 
ened. And to the speculative philosopher I sup- 
pose there is no other phase of the whole subject 
so interesting as this. 

It is time, then, to hear the other side of these 
matters. What is it that, being urged in defense 
of these corporations, enables the men that profit 
by them to proceed composedly upon their way and 
many other men to hesitate in their judgment? 

Well, it is this — and if I do not state the argu- I 
ment with perfect fairness I hope to be corrected. 

The practice of overcapitalization, or, In a com- 
mon phrase, of stock-watering. Is defended on two 
grounds : 

First, any enterprise may legitimately, justly, 
and properly be capitalized to the full extent of its ^ 
earning power. For Instance, let us suppose a com- If 
mercial or manufacturing enterprise with a capital 
of $100,000. It grows In prosperity until it is | 



LAWLESS WEALTH 259 

making, let us say, $25,000 a year. If it were to 
be sold no man in his senses would argue that it 
should be sold for $100,000. At the rates for 
money current until within a few months an enter- 
prise earning $25,000 a year might justly be held 
to be worth $400,000. Now, if its value to sell is 
$400,000 no one can find fault if it be capitalized 
at $400,000, and if the owners by increasing its 
capital reap in that w^ay the legitimate profit of the 
increased business, which, in their opinion doubt- 
less, their own ability, energy, and foresight have 
created, to do so is their legal right. In the same 
way a railroad company, a traction company, or a 
gas company, making profits in excess of the pre- 
vailing rate of interest, is entitled to increase its 
capital to a point where the interest rate it earns 
shall be on a plane with current average rates. 

Second, these increases in capital in no way affect 
the public and are not the public's concern. 

So men say. But how does this matter really 
stand? 

The argument about the legitimacy of capital- 
izing the earning power takes no account of the 
vicissitudes of business conditions, and that is the 
very point that in the case of public utilities like 
transportation and lighting is of supreme impor- 



26o LAWLESS WEALTH 

tance. Your $100,000 enterprise that earns $25,- 
000 this year may next year earn only $5,000 or it 
may earn nothing at all. With profits of $5,000 
It can pay dividends on a capital of $100,000; it 
can pay none on a capital of $400,000. Suppose, 
then, the public to have purchased the additional 
issue of stock (when the capital was increased from 
$100,000 to $400,000) in the expectation of a 
$25,000 profit. If there be nO' dividends forth- 
coming the value of that stock declines, and there 
are not only losses and embarrassments to the hol- 
ders, but there has been loosed a tremendous power 
to destroy confidence, to upset business, and to 
cause a row of additional losses like a row of fall- 
ing bricks. 

Because the stock has been deposited with the 
banks as collateral and as the price of it falls the 
banks throw it upon a falling market or demand 
further collateral to protect their loans. So that 
daily over our heads hangs this sword of the unsafe 
loan collateral — so long as we have watered stocks. 

Moreover, while all this is bad enough in the 
case of an enterprise of a private nature (an en- 
terprise with which the public can deal or not deal 
as it chooses) , there are in the case of a public util- 
ity like a railroad or a street-car line many evils in- 



LAWLESS WEALTH 261 

finitely worse. If the managers of a private enter- 
prise attempt, by increasing prices, or by impairing 
service, to make up a deficit in profits, the public 
can usually avoid the imposition by avoiding the 
product of that enterprise. But It has no such 
chance in the case of a public utility. There is but 
the one gas company; the public must at the price 
demanded take the gas or go without. There is 
but one traction company; the public must submit 
to the overcrowding or walk. 

Again, in the case of the public utility the in- 
crease of the capital is almost invariably made in 
advance of the increase of business, so that what 
is capitalized is not what the enterprise has earned, 
but what it can be twisted, forced, and driven into 
earning. And these processes of forced earnings 
in the end resolve themselves into merely two prop- 
ositions : 

Either the charges that the public must pay are 
increased ; 

Or the service that the public must endure is im- 
paired. 

No human ingenuity has ever been able to devise 
any other way of providing these forced profits. 

Sometimes the additional stock or additional 
bonds that represent the ''capitalized earning 



262 LAWLESS WEALTH 

power" are sold for cash; sometimes they become 
the private property of the fortunate gentlemen 
thus possessed of the power to make something out 
of nothing. Cases are recorded in which the cash 
obtained from the additional securities loaded upon 
the public's broad back has been used to improve 
or maintain the property; very much oftener it is 
used for no such purpose, but only to acquire, by 
the issue of excessive capitalization, the possession 
of other properties already excessively capitalized. 
But in practically every case a radical improve- 
ment of the property is absolutely essential for 
the welfare and safety of the public, and the 
money used to pay the interest on the new bonds 
or the dividends on the new stock is really dug bod- 
ily out of the physical condition of the property. 

After us the deluge. 

You can see at a glance how true this is in the 
conspicuous Instances of the steam-railroads of the 
country and the traction systems of the cities. 

We have now about 218,000 miles of steam- 
railroad of which only 15,000 miles are double- 
tracked. Practically the entire mileage should be 
double-tracked, not only for public safety, but to 
carry the traffic. 

If there were no stock-watering there need be no 



LAWLESS WEALTH 263 

single-tracked railroads. The money that normally 
would have been used for double-tracking has gone 
for dividends on the watered stock. 

We have on our steam-railroads thousands of 
grade-crossings (a very barbarous and stupid de- 
vice) by means of which every year hundreds of 
persons needlessly lose their lives. 

If there were no stock-watering there need be no 
grade-crossings. The money that normally would 
have been used to abolish these death-traps has gone 
for dividends on the watered stock. 

In the case of the street railroads the vile over- 
crowding, the strap-hanging, the monstrous discom- 
fort, the infrequent cars, the bad tracks, the 
wretched conveniences, are merely products of 
stock-watering. 

The money that normally would have gone into 
adequate equipment has gone for dividends on 
watered stock. 

In the case of the gas companies good gas can 
be made and sold profitably at fifty cents a thousand 
I feet. We pay, in the majority of cases, $1 or more, 
and usually get poor gas even at that price. 

The odd fifty cents is for dividends on watered 
stock and excessive bonds. 
I To illustrate these matters with an applicable in- 



1 



264 LAWLESS WEALTH 

cident, several of the Western States have lately 
passed laws reducing the limit of passenger fares 
and fixing it in some cases at two cents a mile. An 
eminent railroad magnate recently returning from 
his annual vacation in Europe was quoted by news- 
papers as denouncing this legislation and declaring 
that if it were not stopped railroads in his control 
would be driven to withdraw practically from the 
passenger business and to restrict their energies to 
the transporting of freight. 

It is easily demonstrated that if the stocks of 
these railroads had never been watered, if, in other 
words, this mythical earning power had never been 
capitalized, they could carry passengers at one cent 
a mile and make much money. 

Hence the difference between one cent and three 
cents, which the railroad magnate thinks should be 
the rate, is the tax that the public would pay for 
the existence of the water. 

Hence, also, it Is solely on account of this water 
that the railroad magnate threatens us with the loss 
of transportation facilities. 

But w^hat under the sun do we get for our two 
cents contributed in this cause? What possible 
good results to us? We pay them, that is certain 
enough, year in and year out, but what 



LAWLESS WEALTH 265 

do we get for them? On this point I should 
love to be instructed. So far I have been un- 
able to learn of any advantage accruing to 
the public except a view of the exteriors of some of 
the palaces erected from this water. I think we 
have never been called an architectural people, but 
even if we were this privilege, at the price, would 
seem an over-rated pleasure. 

And there is no available refuge in the specious 
fallacy to the effect that we need not worry about 
these accumulations, because the money won by 
these methods is not hoarded, but returned to cir- 
culation and the public gets it again. If there were 
anything in that we should need no laws against 
burglary, for the burglar does not hoard his gains 
either. It is quite true that Mr. Rockefeller, for 
example, does not dig holes in his cellar and hide 
his gold therein. It is quite true that with the 
enormous profits he gathers from Standard Oil 
he buys a gas company and with the profits from 
the gas-works he buys a trolley-line, and so on. It 
is also true that gas-works and trolley-line must 
employ men and pay wages. But the control of 
the enterprise remains in Mr. Rockefeller's hands; 
the distribution of the earnings of the enterprise, 
which was unfair in the beginning, is made still 



266 LAWLESS WEALTH 

more unfair because he secures for himself a stead- 
ily increasing percentage; and the money that he 
thus gathers under his own control ceases to be any 
incentive to the endeavors of other men. Above 
all, as fast as he uses his augmenting profits to 
purchase additional enterprises he closes with each 
acquisition another avenue of opportunity and 
moves us all still farther toward the day that threat- 
ens us when we shall be nothing but a nation of 
hired men and there will be not even a pretense of 
the old American freedom of opportunity. 

So this is the prospect that opens upon the flat- 
dweller with his $1,639 of ^otal possessions as he 
looks upward along the track by which men used to 
climb out of poverty. It has narrowed now to 
a practically impassable trail; pretty soon it prom- 
ises to disappear altogether, and he will then be like 
a man born in India, inexorably fated all his living 
days to the one station, the one caste, the one mo- 
notonous employment. 

And if this seems uncheerful for him, how do 
you think the segregation of .the country's avail- 
able resources affects the men below, men among 
the 1,500,000 of the poor and the 2,000,000 of 
the very poor ? The dismal and dingy hives in At- 
torney Street look more forlorn th^n ever: before 



I 



LAWLESS WEALTH 267 

these certain facts, those dreary regions wherein the 
people buy coal at the rate of $16 a ton and are 
by us plucked similarly for other trifles. Not much 
cheer in the outlook for them, is there? A kind 
of invisible tube or suction pump is made into 
each of these dwellings, and there it goes day after 
day, pumping up the extra cent pieces for the 
watered stocks of coal companies and the watered 
stocks of railroad companies, the watered stocks of 
gas companies and the watered stocks of street- 
railroad companies, the watered stocks of flour- 
mills and the watered stocks of elevators. The cost 
of living mounts grievously upon the inhabitants, 
we all know that, and from everything they buy 
there are taken these tributes for the watered 
stock. 

What do you think of it? 

It is the fraudulent stock issue and the unfair 
stock manipulation that from the fund that should 
be for all draw the useless and senseless hoards of 
the few. No other nation on earth has ever tol- 
erated any such machine for the making of billion- 
ares and paupers. Is there not ground for the sus- 
picion that we have tolerated it long enough? 

So it is perfect nonsense to say that the public 
1 has no concern in these matters; it has every con- 



268 LAWLESS WEALTH 

cern in them. For the sake of the $40,000,000 
that Mr. Yerkes (by the methods I have described) 
extracted from the street railroads of Chicago the 
community endured for many years the most abom- 
inable traction service in this world. The $40,- 
000,000 would have given the people a good ser- 
vice; the difference between the good service and 
the bad service inflicted upon them meant a sum 
of inconvenience, discomfort, suffering, and some- 
times of impaired health that is revolting to con- 
template. In New York the money represented by 
the water in the street-railroad system would have 
provided the city with ample, quick, and com- 
fortable transit in all directions. The issuing O'f 
that water means the difference between such transit 
and the terrible scenes witnessed nightly at the 
.Brooklyn Bridge and in the Subway. 

Not only that, but it makes the difference be- 
tween a normal and an abnormal fare. If there 
never had been any water in the New York street- 
railroad system, if the total capital represented 
nothing but the actual investment, if there had 
never been any experiments with this devilish 
"capitalizing of the earning power," the street-rail- 
roads of New York could carry passengers for 
three cents and make money. So that of every five 



LAWLESS WEALTH 269 

cents paid now on these railroads two cents are paid 
to support the water and three cents in compensa- 
tion for the service rendered. 

And kindly observe again, if you will, that in 
all these matters the mass of the people has no 
choice. To the 10,000 of the very rich and the 
500,000 of the rich it makes no difference what 
may be the condition of the New York transporta- 
tion system. These have their carriages or their 
automobiles, or if ever any of them happen to make 
use of a street-car line the time is the time of the 
least crowding and the least discomfort. 

And again, to these also the extra two cents ex- 
tracted for water in the street-car stocks and the 
extra fifty cents extracted for water in the gas stocks 
are matters of no importance. 

To the 1,500,000 of the poor and the 2,000,- 
000 of the very poor they are matters of great im- 
portance. 

Take one of those shop-girls going to work early 
in the morning, coming home after six o'clock at 
night. It IS of very great Importance to her that 
of the $5 or $6 that she earns by a week of toil the 
street-car company takes twenty-four cents to pay 
for the water in its stocks. When she has paid 
her board and put aside something for her clothing, 



270 LAWLESS WEALTH 

twenty-four cents is to- her an important sum. It 
Is of very great importance to her that for every 
thousand feet of gas consumed where she lives her 
landlady must pay fifty cents for the water in the 
gas stocks; the landlady only passes the charge 
(with interest) to the tenants. It is of very grave 
importance to this shop-girl that after a day of hard 
toil at her employment she must stand upon her 
feet for perhaps an hour and be crushed and 
crowded and subjected to the grossest indignity in 
the hideous and unutterable conditions that we tol- 
erate in our public conveyances. It is of very grave 
importance to her ; you cannot easily dodge the con- 
viction, if you stop to think of it, that her physical 
welfare and the physical welfare of her sisters are 
of grave importance to the rest of society. 

From these burdens thus laid upon her she has 
no escape. She must do her work, and she cannot 
walk, for on her earnings she can live only at a 
great distance from her employment; she must re- 
port for duty at eight o'clock, she must remain until 
five or six, she must travel when the traveling crowd 
is greatest, when the jostling and jamming are most 
intolerable. She is, therefore, the bound and help- 
less victim of this system, and straight from her 
little earnings and the earnings of her kind comes 



LAWLESS WEALTH 271 

the enforced tribute that renders possible the '*cap- 
italizing of the earning power" and all the other 
pleasant devices of the high finance. 

What do you think of it? 

Unless we are to take the position that the pub- 
lic exists solely to be the dumb, blind, patient ser- 
vitor, to furnish these dividends and to keep still 
about them, how can we suppose that stock-water- 
ing is none of the public's concern? 

Yet the whole disastrous business has the war- 
rant of long custom and of our established and 
most strange tolerance, that is very true. Does 
any one imagine that there is anything new about 
these ways of Getting It ? They have been fol- 
lowed absolutely by two entire generations of for- 
tune-makers. Twenty-five years ago a certain fa- 
mous pamphlet essayed to show that up to that 
time there had been wrongfully taken from the re- 
sources of the New York Central something like 
$30,000,000. Those that profited by these opera- 
tions in the high finance of that day were the men 
in control of the property; those that suffered were 
the stockholders at large and the public. A con- 
cise view of similar exploitation in another enter- 
prise may be obtained from Mr. Charles Francis 
Adams's ^^A Chapter of Erie." Or the curious 



272 LAWLESS WEALTH 

may well be referred to the celebrated case of the 
bridge at Albany, which long drew from the stock- 
holders of the road (and from the public) a great 
annual tribute for the benefit of one family; or to 
the familiar story of the private car lines, which 
are only another phase of the same general sys- 
tem; or to the story of the National City Bank 
and the Custom House site; or to one thousand 
other stories, If you care to look them up, all illus- 
trating the one principle of unfair advantage and 
of burdens piled upon the shoulders of those least 
able to bear burdens. 

So now we traverse again the beautiful avenue 
by the park, and observe the gleaming palaces, the 
rapid automobiles, the happy people. But they 
have a different look. Clearly that statement of 
gained knowledge that shot across our path in the 
beginning of our journeying from Attorney Street 
to Fifth Avenue was quite correct. We see now 
that the first man did not gain his palace by sup- 
plying any demand, nor the second by providing 
any mart, nor the third by producing any com- 
modity, nor the fourth by transporting any goods 
or people. These palaces represent no service 
to society, no reward for any one thing bet- 
tered, no creation, no development, but only the 



LAWLESS WEALTH 273 

means to seize and to retain the resources of the 
country. Very beautifiil are the palaces, grand the 
glory of the avenue. Reflecting upon the shop- 
girl standing in the street-car and the part she plays 
In this magnificence, are we quite sure that these 
splendors are worth the price? 



CHAPTER XX 

COPARTNERS IN GUILT 

Shall we say that at the bottom of all these 
achievements is some flaw in the character of the 
men that do them, something that sets them apart 
as monstrous or abnormal? 

How absurd that will seem if we do but consider 
of it impartially! These men are not different 
from other men ; they are not sinners above all the 
other dwellers in this, our country. What non- 
sense It would be to choose them from the rest for 
vicarious sacrifice! Given the opportunities and 
the power a very large number of us would under 
the system we have created and after the standard 
we have set up do exactly what they have done. 

If I leave a handful of silver dollars on my door- 
step with the sign *'Take One" and come back to 
find them gone I shall be but a figure of mirth if I 
go about denouncing the persons that have accepted 
my invitation. 

274 



LAWLESS WEALTH 275 

Suppose now In the privacy of our consciences 
we have a little frank talk with ourselves. What 
kind of a man is it that, for the last generation at 
least, we most have honored ? The successful man. 
And what to our minds has invariably and solely 
constituted success? Piles of dollars. And how 
have we regulated the fervor of our applause for 
these men? By the size of their dollar piles. And 
have we ever stopped to bother very much about 
the means by which the piles were gathered? Not 
once that I can remember. 

Well — ^what would you expect? 

Let me tell you of two men I happen to know 
about, and probably they will remind you of a hun- 
dred similar men that have crossed your own obser- 
vation. One by gambling in the necessities of life 
had accumulated a vast fortune. Sometimes for 
millions of people he made bread dear and some- 
times he made meat dear. He entered into illegal 
arrangements with railroads. He made illegal 
combinations with other men in his way of busi- 
ness. Once his firm was discovered to have issued 
fraudulent warehouse receipts and a scapegoat was 
put forward to take the heavy blame that there 
was too much reason to think belonged elsewhere. 
But the man made money, he made much money, 



276 LAWLESS WEALTH. 

and when he died the newspapers eulogized him 
and idolized him and from a hundred pulpits re- 
sounded fervent praise, for this was the career that 
to the admiration and edification of young men was 
held up as the career of a model American. 

The other man was a merchant. He paid to his 
employees a smaller rate of wages than In his town 
any other merchant paid. He evaded his taxes. 
He violated city ordinances and a State law. He 
disregarded a decision of the Supreme Court. He 
made money and invested in corporations that pros- 
pered by breaking the federal statutes. He was a 
keen bargainer; he gathered a great fortune. But 
he had no interest in life outside of his steadily in- 
creasing hoards, and in the course of a long career 
he never once manifested the slightest concern 
about any civic duty. All of his existence and all 
of his faculties were centered in sordid gain by 
whatsoever means, although for many years he had 
possessed wealth immeasurably beyond his utmost 
needs. 

This man died and the newspapers and pulpits 
uttered of him praise that would have been ex- 
travagant for a great philanthropist or public bene- 
factor, hailing him as more truly the model Amer- 



LAWLESS WEALTH 277 

lean than the other, even more admirable, even 
more to be Imitated by our youth. 

None of us can remember a time when we did 
not do this sort of thing. 

If then it be true that the model American career 
IS one devoted to grabbing money by whatsoever 
means, how shall we now turn about and condemn 
the men that have literally accepted our ideal as we 
have held it up to them? For the great majority 
of men in this world a moral code is simply the 
opinions of the men about them. No man can be 
blamed for desiring and seeking the praise of his 
fellows. Heretofore we have given our praise to 
the money-getters. Then shall we profess aston- 
ishment that men do extreme things to get money 
—now that we are all discovering what that means 
for the rest of us? 

Some of us have talked much and written much 
about retribution for the men that have done these 
things, bringing the law down upon them or — 
comical thought! — subjecting them to a "social 
ostracism," whatever that may be. 

How foolish that seems ! Come, let us be frank. 
Who is to blame for all these occurrences? You 
and I are to blame. We have created and tolerated 
and enlarged and admired the conditions that 



278 LAWLESS WEALTH 

make possible the accumulating* of these hoards and 
the oppressing of these populations; we have 
pointed out to our fellows the Agreeable Formula 
and the way to use it ; we have responded with our 
plaudits and our earnings when use has been made 
of It exactly in accordance with our indications. 
So long as we leave our dollars on our door-steps 
we need not expect to find them there on our re- 
turn. So long as we give over public utilities to 
private greed we should expect to have them used 
for the piling up of great fortunes at our expense. 
So the next time I see that terribly crowded car 
bumping along Twenty-eighth Street, the next time 
my ribs are imperiled in the Subway crush, the next 
time I hang to a strap in a Broadway car, the next ^ 
time I am defrauded on a railroad or a sleeping- 
car, I shall, if I am fair and just, utter no com- 
plaint against the syndicate, nor revile the traction 
management, nor curse the railroad company, but 
seek some quiet spot and sedulously kick myself. 
For In conjunction with a similar incapacity on tHe 
part of my fellow citizens, my vast inability to 
manage my own affairs Is responsible for all this; 
yes, even for the tortures of the weary shop-girl 
standing in the cruelly crowded car, even for the 
confiding stockholders that lose their investments, 



* 



LAWLESS WEALTH 279 

even for the watered-stock panics that sweep over 
the country. Elsewhere In the world civilization 
proceeds without these troubles. What is wrong 
with us that it IS attended by them here? 

Where did the gentlemen Get It? They Got It 
from us and by means of our own witless con- 
nivance, brethren. For do you not suppose that if 
we try we can take those filching fingers from our 
pockets ? 



THE END 



Confessions of a Muck-Raker 



How I Came to Write an Expose of the 

Beef Trust^ Instead of an Essay on 

the Amphibrach Foot. 



Like many other Americans, I had long known 
in a general way that some of the great corpora- 
tions of this country were lawless and greedy; but 
I did not hold that fact to be any especial con- 
cern of mine, and having, for the first time 
in my life, a little leisure, I was wholly engrossed 
in writing a book (which I knew no one would 
ever read) about Algernon Charles Swinburne. 
One day, as I was making some musical analyses of 
the amphibrach foot, there was brought to me a tele- 
gram from my friend Mr. Ridgway, of Every- 
body's, asking me to see J. W. Midgley, in Chi- 
cago, and induce him to write '*an article on the 

281 



282 CONFESSIONS OF A MUCK-RAKER 

basis of his extraordinary testimony." With not 
the best grace in the world I left the amphibrach 
foot and started from Evanston (where I was then 
living) for Chicago. On the way It occurred to 
me that It might be as well to discover what this 
"extraordinary testimony" was about. So I bought 
a newspaper and looked It up. 

What I read gave me a new sensation. I knew 
Mr. MIdgley to be of high character and great 
experience In railroad matters, but It did not 
seem to me possible that what he was reported to 
have said could be an accurate representation of 
an existing condition In any civilized country. He 
was testifying before the Interstate CommerceCom- 
mlsslon concerning what seemed to be a huge com- 
mercial tyranny, as arbitrary, as cruel and as oppres- 
sive as ever was any satrapy In the Old World. I 
went to his office and saw him. He took Mr. Rldg- 
way's proposal under consideration. When I left 
him I did not feel much minded toward the amphi- 
brach foot. I thought I would stroll over to the 
Interstate Commerce Commission and see If there 
was any more extraordinary testimony. I could 
take up the amphibrach foot later. 

There was a man on the stand, testifying, a clean- 
cut, blue-eyed, honest-faced Welshman, and he was 



CONFESSIONS OF A MUCK-RAKER 283 

telling how, because he had ventured to oppose this 
commercial tyranny, he had been pursued and 
threatened and persecuted and nearly ruined. 
Another man came to the stand and told how a 
farmer in Southern Illinois had toiled all summer 
over a little patch of ground, only to find when he 
had sent his produce to market that this commercial 
tyranny had levied toll upon it until he not only 
received nothing, but owed on his shipments. And 
other witnesses told other stories of hardship 
and injustice at the hands of this same power; 
and all these stories centered about the oper- 
ating of a monopoly of refrigerator cars owned or 
controlled by the Beef Trust, and all were state- 
ments wholly incompatible with any theory of free 
government and wholly calculated to start boiling I 
blood in the veins of any American. Two days 
later, when Mr. Midgley found he had no time 
to write the article, and Mr. Ridgway wired me if 
I would write it, I popped back "Yes" before I 
knew it; and to my infinite dismay as soon as I had 
time to reflect. 

So there I was, plunged with no volition of mine 
into the fight. I had lived some years in Chicago, 
but had never been to Packingtown, and, except an 
olfactory evidence, had no idea where it was. I 



284 CONFESSIONS OF A MUCK-RAKER 

had to begin at the beginning and learn the ropes, 
dividing my days between Packingtown and South 
Water Street, where the produce commission houses 
were. Soon I discovered that no one article would 
hold this subject, and before long Everybody's had 
agreed to use a series instead of one paper. 

I knew that so soon as one article should appear, 
information would be hard to get, and I figured 
that I had about three months for unimpeded In- 
vestigation. I found, as a matter of fact, that I 
had not been at work ten days before I was an ob- 
ject of marked suspicion In the Stock Yards region, 
and soon afterward I was aware that I was under 
a careful espionage. Presently the sources of In- 
formation seemed to close against me, and I learned 
that wherever I went I was followed, that persons 
to whom I spoke were visited and warned, and It 
was well understood about the yards that I was a 
visitor of evil intent and not to be talked with. I 
,had not been at pains to conceal a connection with 
Everybody's Magazine, Mr. Lawson's revelations 
of "Frenzied Finance" were then appearing In that 
periodical, and It is evident to me now that my ap- 
pearance was construed as foreshadowing an at- 
tack, though at the time why I should have been so 



CONFESSIONS OF A MUCK-RAKER 285 

quickly suspected and checkmated was a matter of 
the greatest perplexity to me. 

Meanwhile, although I had secured a working 
basis of knowledge concerning the business, I lacked 
innumerable and indispensable details that I could 
see no way of getting, and my dilemma was greatly 
aggravated by the discovery that another magazine 
was working upon the same lines. From this try- 
ing position I was now rescued by three circum- 
stances, over none of which had I the least control. 
The first of these was a very good friend in Pack- 
ingtown, who undertook, at some risk to himself, 
to secure every detail about which I was perplexed. 
For the second, I fell accidentally against one end 
of a remarkable private quarrel within the ramparts 
of the Trust, and one party to this quarrel saw an 
interest in putting me in the way to get inside infor- 
mation. Even at this distance I do not see that I 
am called upon to be more explicit, but I may say 
that the row involved one of the most extraordinary 
stories I have ever known and one still, I believe, 
wholly buried beneath the records of Packingtown. 

The third factor was still more remarkable, and 
remains to this day a mystery to me. On the pub- 
lication of the first article I began to receive an 
immense number of letters, some anonymous and 



286 CONFESSIONS OF A MUCK-RAKER 

of a disagreeable nature. In the lot there came 
every day, at exactly the same hour, a brief type- 
written, unsigned communication that proved of 
the greatest possible use to me. There was then 
in Chicago a certain man that, above all other men, 
should have had no communication with the man- 
agers of the Beef Trust. These letters began by 
reporting every day the movements of this man, 
showing that he was frequently in consultation with 
those managers. Upon this information I put what 
is called an "operative" ; he reported that the infor- 
mation was absolutely correct; but while, day after 
day, the report of the operative and the report of 
my unknown correspondent entirely agreed, the 
operative could never discover that any one else 
was watching the suspected man. The letters now 
proceeded to give me a series of invaluable hints as 
to my investigation. Invariably, after most 
careful investigation, I found these perfectly 
correct, and from them I was led to a mass of in- 
formation far beyond my requirements. The let- 
ters continued for some weeks and then stopped 
as abruptly as they began. I need hardly say that 
nothing they contained was ever given credence 
without complete investigation ; yet the curious fact 



CONFESSIONS OF J MUCK-RAKER 287 

is that I never once found them to contain an error. 
To this day I have not the slightest idea of the 
identity of my correspondent; but one thing was 
clear — ^he was not seeking reward or revenge. 

Great efforts were made to discredit the articles 
when they appeared. A campaign was organized, 
the advertising agencies were enlisted, and huge 
advertisements of Trust goods were given to every 
newspaper that would print an editorial denoun- 
cing me. A cry was ingeniously raised that I had 
slandered the people of Iowa and an impression 
created that I had said many things I had never 
said. An officer of the United States Government, 
who is now president of a Trust bank of Chicago, 
was induced to write an article refuting my 
charges, about which he knew nothing. But 
all these things were mere incidents. The sub- 
sequent vindication by the action of the courts and 
the narrow escape of the Trust gentlemen by the 
application of the "immunity bath" need not be 
recounted here. 

Thus I began to muck-rake. I have been muck- 
raking ever since. I hope to keep on muck-raking. 
I like to muck-rake. No doubt I do it badly, but 
I like it. It isn't as calm and peaceful a pursuit as 
analyzing the amphibrach foot, but it seems to have 



288 CONFESSIONS OF J MUCK-RAKER 

more relation to living men and to be of immeasur- 
ably more use. I find that when a man has tried 
with what little facility he has to do a job of muck- 
raking he can review the day with some satisfac- 
tion; because, no matter how ill he has done the 
work, at least he has been trying to be of some 
slight use to somebody besides himself. That sat- 
isfaction does not pertain to the amphibrach foot. 
Charles Edward Russell. 



NEW AND CHEAPER EDITION OF 

The Greatest Trust 
in the World 

(THE BEEF TRUST) 



BY 

CHARLES EDWARD RUSSELL 

Author of ^'Lawlsss Wealth," etc. 



Cloth^ 8vo. Fifty Cents, Postpaid 



Order of the bookseller, or by mail of the publishers 

B. W. DODGE & COMPANY 

43 West 27TH Street 



NEW YORK 



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